Reference no: EM131951055

1) Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $420,000, to be paid immediately. Bill expects aftertax cash inflows of $91,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 11 percent.

What is the project's profitability index (PI)? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.)

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 $104,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 3 percent per year forever. The project requires an initial investment of $1,570,000.

a-1. What is the NPV for the project if the required return is 12 percent? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV$   ?

a-2. If the company requires a return of 12 percent on such undertakings, should the firm accept or reject the project?

Reject/Accept

b. The company is somewhat unsure about the assumption of a growth rate of 3 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 investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Constant growth rate % ?