Set up a private cemetery business

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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 $93,000 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 $1,460,000.

1) What is the NPV for the project if Yurdone's required return is 10 percent?

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

3) 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?

Reference no: EM132010210

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