Question
Megadeth Inc. is considering expanding its local private cemetery business nation-wide. According to co-CEOs Dave Mustaine and David Ellefson, the business is looking up. The
Megadeth Inc. is considering expanding its local private cemetery business nation-wide. According to co-CEOs Dave Mustaine and David Ellefson, the business is looking up. The expansion will provide a net cash inflow of $127,000 during the first year. Messrs. Mustaine and Ellefson expect cash flows to increase 4% per year indefinitely citing the rationale that death is a growing business. The project requires an initial investment of $1,700,000.
If Megadeth Inc. requires an 11% hurdle rate for such undertakings, should they proceed with the private cemetery project?
Megadeths CFO, Kiko Loureiro, is somewhat unsure about the 4% perpetual growth rate and asks you to determine the break-even growth rate based on the 11% hurdle rate.
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