Question
4) First Capital recently evaluated a project and calculated its cash flows, which are presented below. However, after the analysis, the Federal Reserve made changes
4) First Capital recently evaluated a project and calculated its cash flows, which are presented below. However, after the analysis, the Federal Reserve made changes to
the interest rates that affected the company's weighted average cost of capital (WACC), before the final decision to accept or reject the project was made. Its important to note that the Federal Reserve's actions didn't impact the projected cash flows of the project. What is the impact of the WACC change on the projects estimated net present value (NPV)? Keep in mind that if the project's projected NPV is negative, it should be rejected.
Old WACC: 10.00% New WACC: 11.25%
Year 0 1 2 3
Cash flows -$1,000 $410 $410 $410
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