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Federal Reserve shift in monetary policy

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The Federal Reserve recently shifted its monetary policy, causing Laser Vision's WACC to change. Laser 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 will not affect the cash flows.

Old WACC = 10%

New WACC = 8%

Year
0
1
2
3

Cash Flows
-$1,000
$500
$520
$540

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Solution Summary

An attached Excel spreadsheet investigates how a change in WACC caused a change in NPV forecasts that caused the federal reserve to reconsider several projects.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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