Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 m

Question

Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 million, and expected cash inflows of $415,000 per year in years 1, 2, and 3. However, before the décision to the Federal Reserve took monetary action to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV? accept or reject the project. that lowered interest rates and changed the firm's WACC from 10% Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although decimal places are okay), with no special characters.

Explanation / Answer

calculation of the net present value at 10 % wacc 1 years 1 2 3 2 cash flows 415000 415000 415000 3 PVRF at 10 % 0.9091 0.8264 0.7513 4 present value cash flows ( 2 * 3 ) 377273 342975 311796 5 total present value 1032044 6 initial cash outlay 1000000 7 net present value ( 5 - 6 ) 32044 calculation of the net present value at 9.50 % wacc 1 years 1 2 3 2 cash flows 415000 415000 415000 3 PVRF at 9.50 % 0.9132 0.8340 0.7617 4 present value cash flows ( 2 * 3 ) 378995 346115 316086 5 total present value 1041196 6 initial cash outlay 1000000 7 net present value ( 5 - 6 ) 41196 due to change in the wacc from 10 % to 9.50 % the NPV of the project has been increased by 9153 ( 41196 - 32044 )

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