The Yurdone Corporation wants to set up a private cemetery business. According t
ID: 2661238 • Letter: T
Question
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 $103,000 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 $1,560,000.
What is the NPV for the project if Yurdone's required return is 10 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
If Yurdone requires a return of 10 percent on such undertakings, should the firm accept or reject the project?
The company is somewhat unsure about the assumption of a 4 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 10 percent on investment? (Round your answer to 2 decimal places. (e.g., 32.16))
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 $103,000 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 $1,560,000.
Explanation / Answer
Q: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 $90,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5 percent per year forever. The project requires an initial investment of $1,430,000.1.What is the NPV for the project if Yurdone's required return is 10 percent?
2.The company is somewhat unsure about the assumption of a 5 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 10 percent on investment? A:Present value of perpetuity growing at 5% and discounted at 10% is
PV = Amount / (r - g)
Amount = 90000, r = discount rate =10%, g = growth rate 5%
PV = 90000 / (10 - 5)% = 1800000
Net present value = -1430000 + 1800000 = 370000
Break even when Present value = Investment = 1430000
PV = 1430000 = 90000 / (0.1 - g)
g = 0.1 - 90000 / 1430000 = 0.037063 or 3.7063% this will help you.......same as ur question
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