Klingon Enterprises is considering opening a retail store selling classic weapons from history. Gowron, the CEO of the company has estimated it will cost $500K today to open the store today, and the best guess is after-tax cash flows will be $90K next year, and this is expected to grow each year after. The store has a lease of 7 years.

1. If the appropriate discount rate for this project is 9.0%, what level of annual growth will the business need to break-even on an NPV basis? Assume cash flows occur at the end of each year.
2. (TOUGH question). Suppose we make a more realistic assumption that the annual cash flows occur at the middle of each year, how does this fact change your answer to a)?