Question $3.$

$($Total $26$ marks$)$

Part $1(8$ marks$)$

XYZ Corporation wants to set up a private business. The prospects of the business are looking positive. The project will provide a net cash inflow of $$180,000$ for the firm during the first year, and the cash flows are projected to grow at a rate of $4$ percent per year forever. The project requires an initial investment of $$2\mathrm{.}2$ million.

If the company requires a return of $11$ percent on such undertakings, should the business be started? $(4$ marks$)$

The company is somewhat unsure about the assumption of a $4$ percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of $11$ percent on its investmen? $(4$ marks$).$