The Yurdone Corporation wants to set up a private cemetery business. According t

ID: 2633277 • Letter: T

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 cemetery project will provide a net cash inflow of $103,000 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 $1,560,000.

What is the NPV for the project if Yurdone's required return is 10 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

If Yurdone requires a return of 10 percent on such undertakings, should the firm accept or reject the project?

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 10 percent on investment? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

a. 2 Accept the project since NPV is positive.

Solution: Computation of the NPV Cost investment= $1,560,000 Present Value = Cash1/ (r-g) Cash inflow for next year= Cash1 = $103,000 return= r= 10% growth rate of cash flow= g= 4.00% Present Value of cash inflowsflows= Present Value= (to be determined) Plugging in the values: Present Value= $1,716,667 =103000/(10.%-4.%) NPV= Present Value of cash inflows- Initial investment= $156,667 =1716667-1560000

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The Yurdone Corporation wants to set up a private cemetery business. According t

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The Yurdone Corporation wants to set up a private cemetery business. According t

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