S$09-25$ NPV Valuation $[$L$01]$

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 $4$ percent per year forever. The project requires an

initial investment of $$2\mathrm{.}2$ million.

$0-1.$ What is the NPV for the project if the company's required return is $11$ percent? $($Do

not round Intermedlate calculatlons and round your answer to $2$ decimal places,

e$.$g$.,32\mathrm{.}16.)$

NPV

$0-2.$ If the company requires an $11$ percent return on such undertakings, should the

cemetery business be started?

No

Yes

b$.$ The company is somewhat unsure about the $4$ percent growth rate assumption in its

cash flows. At what constant growth rate would the company just break even if it still

required a return of $11$ percent on investment? $($Do not round Intermedlate

calculatlons and enter your answer as a percent rounded to $2$ decimal places,

e$.$g$.,32\mathrm{.}16.)$