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 cemetery project will provide
a net cash inflow of
$115,000 for the firm 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 $1,400,000.
a. If Yurdone requires a 13% return on such undertakings, should the cemetery business be
b. 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
Practice problem 3:
Calculate the IRR of a capital project with an initial investment of $30 million. The project
generates after - tax cash flows of $10 million at the end of Year 1, $14 million at the end of Year
2, and $18 million at the end of Year 3. Determine whether the project should be undertaken
given that the required rate of return is 10%.
Practice problem 4:
Let's consider two projects. project A & project B. The cash flow streams for both projects are
given below. For both projects, the required rate of return is 7%. Find the NPV & IRR of each
The NPVs of the projects at the various discount rates are shown below: