Reference no: EM13576099

1) An investment has an installed cost of $673,658. The cash flows over the four-year life of the investment are projected to be $228,701, $281,182, $219,209, and $190,376.

a) If the discount rate is zero, what is the NPV?

b) If the discount rate is infinite, what is the NPV.

c) At what discount rate is the NPV just equal to zero.

2) 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 $109,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.1 percent per year forever. The project requires an initial investment of $1,425,000.

Required:

(a) If Yurdone requires a return of 12 percent on such undertakings, what is the NPV of the project

(b) Should the cemetery business be started?

(c) The company is somewhat unsure about the assumption of a growth rate of 5.1 percent its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment.