The Yurdone Corporation wants to set up a private cemetery business. According 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 $102,000 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 $1,550,000.

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 growth rate of 5 percent 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?(Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

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 $102,000 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 $1,550,000.

Explanation / Answer

Cashflow at year 0 = -$1,550,000
First year cash flow = $102,000
Growth every year there after = g = 0.05
Required Rate of Return = r = 0.10

Since the cash flow are forever, the present worth of the investment can be calculated as follows:
Present Worth = Cashflow at Year 0 + [Cashflow thereafter

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