Lasik Vision Inc. recently analyzed the project whose cash flows are shown below
ID: 2710092 • Letter: L
Question
Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that 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 NPV can be negative, in which case it should be rejected. Old WACC: 8.00% New WACC: 11.25% Year 0 1 2 3 Cash Flows -$1,000 $410 $410 $410 Answers: A. -$59.03 B. -$56.08 C. -$53.27 D. -$50.61 E. -$48.08
Explanation / Answer
Answer:-$59.03
Change in NPV=-2.47-56.57=-59.03
8% 11.25% Year Cash flows P.V.F (8%) PV($) P.V.F (11.25%) PV ($) 0 -1000 1 -1000 1 -1000 1 410 0.926 379.7 0.899 368.59 2 410 0.857 351.4 0.808 331.28 3 410 0.794 325.5 0.726 297.66 Total NPV 56.57 Total NPV -2.47Related Questions
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