on 18 5 pts Last month, Dow Chemical analyzed a project with an nitial cash outf

Question

on 18 5 pts Last month, Dow Chemical analyzed a project with an nitial cash outflow of $1 million, and expected cash inflows of $440,000 per year in years 1, 2, and 3. However, before the decision to accept or reject the project, the Federal Reserve took monetary action that lowered interest rates and changed the firm's WACC from 10% to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV? Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although decimal places are okay), with no special characters

Explanation / Answer

DF = Discounting factor. DF(10) indicates discounting factors at 10% ........which are calculated as 1/1.10 = .... continue to press "=" we get subsequent years. Similarly DF(9.5) ....... 1/1.095 =

PV = Present value = DF * CF

Year CF DF(10) DF(9.5) PV(10) PV(9.5) 0 -1,000,000 1 1 -1000000 -1000000 1 440,000 0.909091 0.913242 400000 401826.5 2 440,000 0.826446 0.834011 363636.4 366964.8 3 440,000 0.751315 0.7616539 330578.5 335127.7             NPV   = 94214.88 103919            Change in NPV   = 9704

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