Question
The yurdone corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is looking up. As a result,
The yurdone 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 $127,000 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 $1,700,000.
a.)If Yurdone requires an 11 percent return on such undertakings, should the cemetery business be started?
b.) The company is somewhat unsure about the assumption of a growth rate of 4 percent 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 investment?
Input area: $ Net cash flow (year 1) Cash flow growth per year Initial investment Required return 127,000 4% 1,700,000 11% $ Output area: PV of cash flows NPV Accept/Reject Necessary growth rate
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