The Yurdone Corp. wants to set up a private cemetery business. According to the CFO, the business is “looking up.” As a result, the cemetery project will provide a net cash flow of $164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4.7% forever. The project requires an initial investment of $1,825,000. a. If the company requires a return of 12%, should the business be started? b. The company is somewhat unsure about the assumption of a 4.7% growth rate in its cash flows. At what constant growth rate wold the company just break even if it still requires a return of 12%?
The Yurdone Corp. wants to set up a private cemetery business. According to the CFO, the business is “looking up.” As a result, the cemetery project will provide a net cash flow of $164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4.7% forever. The project requires an initial investment of $1,825,000. a. If the company requires a return of 12%, should the business be started? b. The company is somewhat unsure about the assumption of a 4.7% growth rate in its cash flows. At what constant growth rate wold the company just break even if it still requires a return of 12%?
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 Corp. wants to set up a private cemetery business. According to the CFO, the
business is “looking up.” As a result, the cemetery project will provide a net cash flow of
$164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of
4.7% forever. The project requires an initial investment of $1,825,000.
a. If the company requires a return of 12%, should the business be started?
b. The company is somewhat unsure about the assumption of a 4.7% growth rate in its
cash flows. At what constant growth rate wold the company just break even if it still
requires a return of 12%?
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