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The Yurdone Corporation wants to set up a private cemetery business. According to the CFO,...

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Finance

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 $180,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4% forever. The project requires an initial investment of $2.2 million.

a. If the company requires an 11% return on such undertakings, should the cemetery business be started?

b. The company is somewhat unsure about the assumption of a growth rate of 4% in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11% on investment?

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