The Yurdone Corporation 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 inflow of \($25,000\) for the firm during the first year, and the cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of \($300,000\).

a. If Yurdone requires a 16 percent return on such undertakings, should the cemetery business be started?

b. The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a 16 percent return on investment?