Question

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. What is the NPV for the project if Yurdone's required return is 12 percent?

Answer 1

Answer:

-$414,444.44

Explanation:

The computation of the net present value is shown below:

Net present value = Initial investment + net cash flows ÷ (required rate of return - projected growth rate)

= -$1,570,000 + $104,000 ÷ (12% - 3%)

= -$1,570,000 + $1,155,555.56

= -$414,444.44

Hence, the net present value is -$414,444.44

Since the net present value comes in negative so the project is rejected