9. value: 10.00 points The Yurdone Corporation wants to set up a private cemeter
ID: 2641424 • Letter: 9
Question
9.
value:
10.00 points
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 $105,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5 percent per year forever. The project requires an initial investment of $1,580,000.
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 5 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))
10. Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are blocked and must be reinvested with the government for one year. The reinvestment rate for these funds is 5 percent.
If Anderson uses a required return of 12 percent on this project, what are the NPV and IRR of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
9.
value:
10.00 points
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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 $105,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5 percent per year forever. The project requires an initial investment of $1,580,000.
a-1What 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))
NPV $ a-2If Yurdone requires a return of 10 percent on such undertakings, should the firm accept or reject the project?
Accept Reject b.The company is somewhat unsure about the assumption of a 5 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))
Constant growth rate %10. Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Explanation / Answer
9.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 $105,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5 percent per year forever. The project requires an initial investment of $1,580,000.
a-1 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))
NPV = - PV of Cash Outflow + PV of cash inflow
NPV = -1580000 + (105000/(10%-5%))
NPV = $ 520,000
a-2 If Yurdone requires a return of 10 percent on such undertakings, should the firm accept or reject the project?
Accept
b.The company is somewhat unsure about the assumption of a 5 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))
Constant growth rate = Required Return - Annual Cash Inflow/Initial Investment
Constant growth rate = 0.10 - 105000/1580000
Constant growth rate = 3.35%
10. Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are
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