last month, Lloyd's Systems analyzed the project whose cash flows are shown below.However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected.

$$\begin{array} { | l | l | l | l | l | }
\hline \text { Old WACC: } & 10.00 \% & & \text { New WACC: } & 12.50 \% \
\hline \text { Year } & 0 & 1 & 2 & 3 \
\hline \text { Cash flows } & - \$ 1,000 & \$ 410 & \$ 410 & \$ 410 \
\hline
\end{array}$$

A)-$18.89
B)-$19.88
C)-$20.93
D)-$22.03
E)-$23.13

Question

last month, Lloyd's Systems analyzed the project whose cash flows are shown below.However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected.

\begin{array} { | l | l | l | l | l | } \hline \text { Old WACC: } & 10.00 \% & & \text { New WACC: } & 12.50 \% \\\hline \text { Year } & 0 & 1 & 2 & 3 \\\hline \text { Cash flows } & - \$ 1,000 & \$ 410 & \$ 410 & \$ 410 \\\hline\end{array}

$$\begin{array} { | l | l | l | l | l | } 
\hline \text { Old WACC: } & 10.00 \% & & \text { New WACC: } & 12.50 \% \
\hline \text { Year } & 0 & 1 & 2 & 3 \
\hline \text { Cash flows } & - \$ 1,000 & \$ 410 & \$ 410 & \$ 410 \
\hline
\end{array}$$

A)-$18.89
B)-$19.88
C)-$20.93
D)-$22.03
E)-$23.13

Quizplus · Accepted Answer

The Answer of last month, Lloyd's Systems analyzed the project whose cash flows are shown below.However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected.

$$\begin{array} { | l | l | l | l | l | } 
\hline \text { Old WACC: } & 10.00 \% & & \text { New WACC: } & 12.50 \% \
\hline \text { Year } & 0 & 1 & 2 & 3 \
\hline \text { Cash flows } & - \$ 1,000 & \$ 410 & \$ 410 & \$ 410 \
\hline
\end{array}$$

A)-$18.89
B)-$19.88
C)-$20.93
D)-$22.03
E)-$23.13

Last Month, Lloyd's Systems Analyzed the Project Whose Cash Flows