Lasik Vision Inc $\begin{array} { l l l l } \text { Old WACC: } & 8.00 \% & \text { New WACC: } & 11.25 \% \end{array}$

question 87

Short Answer

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 projected NPV can be negative, in which case it should be rejected. $\begin{array} { l l l l } \text { Old WACC: } & 8.00 \% & \text { New WACC: } & 11.25 \% \end{array}$

$\begin{array}{c}\begin{array}{lll} \text {Year}\\\text {Cash flows}\end{array}\begin{array}{c} 0 \\\hline -\$1,00\end{array}\begin{array}{c}1 \\\hline \$41\end{array}\begin{array}{c}2 \\\hline \$410\end{array}\begin{array}{c}3 \\\hline \$410\end{array}\end{array}$

a. $- \$ 59.03$
b. $- \$ 56.08$
c. $- \$ 53.27$
d. $- \$ 50.61$
e. $- \$ 48.08$

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Definitions:

Time

The indefinite continued progress of existence and events in the past, present, and future regarded as a whole.

Quantity

The amount, size, or number of something, which can be measured or counted.

Supply Chain Focus

The central attention or concentration on the management of the flow of goods and services, including all processes that transform raw materials into final products.

Profit Center

A distinct segment of a business that is responsible for generating its own revenue and profit, enabling better tracking of financial performance.