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 infl ow of $85,000 for the fi rm during the fi rst year, and the cash fl ows are projected to grow at a rate of 6 percent per year forever. The project requires an initial investment of $1,400,000. a. If Yurdone requires a 13 percent return on such undertakings, should the cemetery business be started? b. The company is somewhat unsure about the assumption of a 6 percent growth rate in its cash fl ows. At what constant growth rate would the company just break even if it still required a 13 percent return on investment?
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 infl ow of $85,000 for
the fi rm during the fi rst year, and the cash fl ows are projected to grow at a rate of
6 percent per year forever. The project requires an initial investment of $1,400,000.
a. If Yurdone requires a 13 percent return on such undertakings, should the
cemetery business be started?
b. The company is somewhat unsure about the assumption of a 6 percent growth
rate in its cash fl ows. At what constant growth rate would the company just
break even if it still required a 13 percent return on investment?
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