Last Month,Standard Systems Analyzed the Project Whose Cash Flows Are

question 92

Multiple Choice

Last month,Standard 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.
$$\begin{array} { l c c c c } \text { Old WACC: } & 10.00 \% & \text { New WACC: } & 11.25 \% \\\text { Year } & 0 & 1 & 2 & 3 \\\text { Cash flows } & - \$1,000 & \$ 410 & \$ 410 & \$ 410\end{array}$$

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

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Definitions:

RMS

Root Mean Square, a statistical measure of the magnitude of a varying quantity, often used to compute the effective value of an alternating current or voltage.

Apparent

Refers to the apparent power in an AC circuit, combining both the real (true) power and reactive power, measured in volt-amperes (VA).

Inductive

Pertaining to the property of inductance, where a change in electric current through a conductor induces an electromotive force in both the conductor itself and any nearby conductors.

True

In alignment with reality or fact; not false.