Question

Apply WACC in NPV. Brawn Blenders has the following incremental cash flow for its new​ project:

Category	T0		T1	T2	T3
Investment	-$4,934,000
Net working capital change	-$412,000				​$412,000
Operating cash flow			​$1,789,000	​$1,789,000	​$1,789,000
Salvage					​$349,000

Should Brawn accept or reject this project at an adjusted WACC of

7.21%,

9.21%,

or 11.21%?

Answer 1

[email protected]% [email protected]% [email protected]% Year Cash flows A 0 $ (5,346,000) 1 $ 1,789,000 2 $ 1,789,000 3 $ 2,550,000 1.000 0.933 0.870 0.812 1.000 0.916 0.838 0.768 1.000 0.899 0.809 0.727 [email protected]% AxB $5,346,000.00 $1,668,687.62 $1,556,466.40 $2,069,351.62 Present value [email protected]% AxC $5,346,000.00 $1,638,128.38 $1,499,980.20 $1,957,730.74 [email protected]% AxD -$5,346,000.00 $1,608,668.29 $1,446,514.06 $1,853,995.43 Net Present value Decision -$51,494.36 -$250,160.69 -$436,822.23 Reject Reject Reject

*Please rate thumbs up