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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 $131,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 6.4 percent per year forever. The project requires an initial investment of $1,540,000.
Required: (a) If Yurdone requires a return of 12 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
NPV =
(b) Should the cemetery business be started?
(c) The company is somewhat unsure about the assumption of a growth rate of 6.4 percent its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment? Minimum growth rate =
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