Question
An investor wants to open a grocery store. This project will provide a cash flows of $97,000 for the first year, and cash flows are
An investor wants to open a grocery store. This project will provide a cash flows of $97,000 for the first year, and cash flows are projected to grow at a rate of 4% per year forever. This project required an initial investment of $1,500,000. If the investor expected a required rate of return of 11% for such undertaking forever, should the investor open the grocery store? The investor is somewhat unsure about the assumption of 4% growth rate in its cash flows. At what constant growth rate would the investor just break even if the required rate of return still is 11%?
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