Author Question: Last month, Smith Systems Inc. decided to accept the project whose cash flows are shown below. ... (Read 17 times)

madimontg · **on:** Aug 7, 2023

Question 1

Johnson Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s NPV?

WACC:	11%
Year:	0	1	2	3	4
Cash flows:	–$1,000	$390	$390	$390	$390

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$193.78

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$197.98

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$201.45

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$209.95

Question 2

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.

New WACC: 9% Old WACC:12%

Year: 0 1 2 3

Cash flows: –$1,200 $600 $600 $600

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$72.18

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$75.19

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$77.68

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$79.69

aublw · **Reply #1 on:** Aug 7, 2023

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