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a-2. If the company requires an 11 percent return on such undertakings, should the cemetery business be started? No O Yes

a-2. If the company requires an 11 percent return on such undertakings, should the cemetery business be started? No O Yes

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $145,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 percent per year forever. The project requires an initial investment of $1,900,000.
 
a-1.

What is the NPV for the project if the company's required return is 11 percent?

The company is somewhat unsure about the 4 percent growth rate assumption in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11 percent on investment?
S09-25 NPV Valuation [LO1] 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 $145,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 percent per year forever. The project requires an initial investment of $1,900,000. a-1. What is the NPV for the project if the company's required return is 11 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Transcribed Image Text:S09-25 NPV Valuation [LO1] 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 $145,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 percent per year forever. The project requires an initial investment of $1,900,000. a-1. What is the NPV for the project if the company's required return is 11 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
a-2. If the company requires an 11 percent return on such undertakings, should the cemetery business be started? No Yes b.The company is somewhat unsure about the 4 percent growth rate assumption in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11 percent on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Constant growth rate %
Transcribed Image Text:a-2. If the company requires an 11 percent return on such undertakings, should the cemetery business be started? No Yes b.The company is somewhat unsure about the 4 percent growth rate assumption in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11 percent on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Constant growth rate %
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