The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking u
p". As a result, the cemetery project will provide a net cash inflow of $101,000 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 $1,540,000.
a-1
What is the NPV for the project if Yurdone's required return is 12 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
NPV $
a-2
If Yurdone requires a return of 12 percent on such undertakings, should the firm accept or reject the project?
Reject
Accept
b.
The company is somewhat unsure about the assumption of a 3 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on investment? (Round your answer to 2 decimal places. (e.g., 32.16))
Constant growth rate %
a-1
What is the NPV for the project if Yurdone's required return is 12 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
NPV $
a-2
If Yurdone requires a return of 12 percent on such undertakings, should the firm accept or reject the project?
Reject
Accept
b.
The company is somewhat unsure about the assumption of a 3 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on investment? (Round your answer to 2 decimal places. (e.g., 32.16))
Constant growth rate %
1 answer:
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Answer:
Market Price $985.01
Explanation:
We have to convert the US semiannually rate to annually.
Now this is the annual rate spected for a similar US Bonds
So we are going to calculate the present value using this rate.
Present value of an annuity of 78 for 20 years at 7.9521%
PV = 768.55
And we need to add the present value ofthe 1,000 euros at this rate
Present Value = 216.4602211
Adding those two values together
$985.01
The reasoning behind this is that an american investor will prefer at equal price an US bonds because it compounds interest twice a year over the German Bonds.