1. 25.

NPV Valuation [LO 9.1] The Coolangatta Homes wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is ‘looking up’. As a result, the cemetery project will provide a net cash in-flow of $145 000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 per cent per year forever. The project requires an initial investment of $1 900 000.

1. If the company requires an 11 per cent return on such undertakings, should the cemetery business be started?

2. The company is somewhat unsure about the assumption of a growth rate of 4 per cent in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11 per cent on investment?