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

ID: 2646999 • 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 $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 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))

Explanation / Answer

First Year Net cash flow = $ 105000

Projected rate of growth forever = 5%.

Initial Investment = 1880000 (although the amount is not clearly visible in the question)

Required rate of return = 10%

a) Firstly, we need to calculate the PV of cash flows lasting forever.

PV of cash flows = Net cash flow in the first year/(Required rate of return

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

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