Question $2$

The ABC 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 $$40,000$ for the firm during the first year, and the cash flows are projected to grow at a rate of $7$ percent per year forever. The project requires an initial investment of $$650,000.$

$($a$)$ If ABC requires a $14$ percent return on such undertakings, should the cemetery business be started? Why? $(5$ marks$)$

$($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 $14$ percent return on investment? $(5$ marks$)$