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

question 24

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.

• A) -$18.89
• B) -$19.88
• C) -$20.93
• D) -$22.03
• E) -$23.13

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Definitions:

Statistical Measures

Quantitative values that summarize and provide information about a set of data.

Characterize

To describe the distinctive qualities or features of something or someone.

Dispersion

A statistical term describing the spread or variability of a set of data points or values around a central value.

Kurtosis

A measure of the "tailedness" of the probability distribution of a real-valued random variable, indicating how the tails differ from the normal distribution.