Problem:
The Yurdone Corp. wants to set up a private cemetery business. According to the CFO, Barry M. Deep. business is "looking up." As a result, the cemetary project will provide a net cash inflow of $60,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 6% per year forever. The project requires an initial investment of $925,000.
1) If Yurdone requires a 13% return on such undertakings, should the cemetery business be started?
2) The company is somewhat unsure about the assumption of a 6% growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a 13% return on investment?