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

question 65

Multiple Choice

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

---

Definitions:

Solomon Asch

A psychologist best known for his research on social conformity.

Leon Festinger

A social psychologist known for his theory of cognitive dissonance, which describes the discomfort felt by an individual when holding contradictory beliefs or values.

Verbal Prompts

Instructions or cues delivered through speech that are designed to encourage or induce someone to take a desired action.

Verbal Abused

The act of using language to demean, criticize unjustly, or belittle another person, often a component of psychological abuse.