Last Month, Smith Systems Inc

question 103

Multiple Choice

Last month, Smith Systems Inc. decided to accept the project whose cash flows are shown below. However, before actually starting the project, the Bank of Canada took actions that lowered interest rates and therefore Smith's WACC. By how much did the change in the WACC affect the project's forecasted NPV? Assume that the Bank of Canada's action does not affect the cash flows, and note that a project's projected NPV can be negative, in which case it should be rejected.

• A) $57.18
• B) $60.19
• C) $63.36
• D) $66.69

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Definitions:

Quantity Demanded

The amount of a good or service that consumers are willing and able to purchase at a specific price level.

Quantity Supplied

The quantity of a product or service that sellers are prepared and capable of offering for sale at a specific price.

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in a market, leading to market stability.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price.