The Federal Reserve recently shifted its monetary policy, causing Lasik Vision's WACC to change. Lasik had recently analyzed the project whose cash flows are shown below. However, the CFO wants to reconsider this and all other proposed projects in view of the Fed action. How much did the changed WACC cause the forecasted NPV to change? Assume that the Fed action does not affect the cash flows, and note that a project's projected NPV can be negative, in which case it should be rejected.
New WACC: 7.00% Old WACC: 10.00%
Year: 0 1 2 3
Cash flows: -$1,000 $500 $520 $540
We calculate the NPV at the two discount rates
NPV = PV of cash flows - initial ...