Question 2: Brawn Blenders has the following incremental cash flow for its new p
ID: 2701113 • Letter: Q
Question
Question 2: Brawn Blenders has the following incremental cash flow for its new project:
Category
T0
T1
T2
T3
Investment
-$3,091,000
Net working capital change
-$ 217,000
$ 217,000
Operating cash flow
$1,120,000
$1,120,000
$1,120,000
Salvage
$ 275,000
Should Brawn accept or reject this project at an adjusted WACC of 10.23%, 12.23%, 14.23%?
Category
T0
T1
T2
T3
Investment
-$3,091,000
Net working capital change
-$ 217,000
$ 217,000
Operating cash flow
$1,120,000
$1,120,000
$1,120,000
Salvage
$ 275,000
Explanation / Answer
at 10.23%
NPV = -3091000 - 217000 + 1120000/1.1023 + 1120000/1.1023^2 + 1120000/1.1023^3 + 217000/1.1023^3 + 275000/1.1023^3
= -166627.4
reject the project since NPV is negative
at 12.23%
NPV = -3091000 - 217000 + 1120000/1.1223 + 1120000/1.1223^2 + 1120000/1.1223^3 + 217000/1.1223^3 + 275000/1.1223^3
= -280498.094
reject the project since NPV is negative
at 14.23%
NPV = -3091000 - 217000 + 1120000/1.1423 + 1120000/1.1423^2 + 1120000/1.1423^3 + 217000/1.1423^3 + 275000/1.1423^3 = -387690.364
reject the project since NPV is negative
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