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 $135,000 for

the firm during the first year, and the cash flows are projected to grow at a

rate of 4.7 percent per year forever. The project requires an initial investment

of $1,575,000.

a. If Yurdone requires a return of 12 percent on such undertakings, should

the cemetery business be started?

b. The company is somewhat unsure about the assumption of a 4.7 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 12 percent on its

investment?