Constant growth rate would the company just break even

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Reference no: EM131562174

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 $115,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.8 percent per year forever. The project requires an initial investment of $1,380,000.

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

b. The company is somewhat unsure about the assumption of a growth rate of 5.8 percent in 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?

Reference no: EM131562174

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