value 10.00 points The Yurdone Corporation wants to set up a private cemetery bu

Question

value 10.00 points 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 $114,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.7 percent per year forever. The project requires an initial investment of $1,370,000. a. If Yurdone requires a return of 15 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. The company is somewhat unsure about the assumption of a growth rate of 5.7 percent in its cash flows. At what constant growth rate would the company just break even if it still required a return of 15 percent on its investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Minimum growth rate % References eBook & Resources eBook: 8.1Net Present Value Check my work

Explanation / Answer

a) NPV = -291152

b)

Value of perpetuity at n=2 Perpetuity Value = ( CFn x (1+ g) ) / R - g CFn = Cash Flow in the Last Individual Year Estimated g = Long-Term Growth Rate R = Discount Rate, or Cost of Capital Year 1 cashinflow 114000 Growth Rate 5.70% Cash flow at end of year 2 (CFn)= (114000*1.057) = 120498 Long Term Growth Rate= 5.7% or 0.057 Discount Rate = 15% or 0.15 Perpetuity Value at n=2= (120498/(0.15-0.057)) 1295677

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