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

Question

Question

Apply WACC in NPV. Brawn Blenders has the following incremental cash flow for its new project: Category To -$4,000,000 T1 T2

Answer 1

Answer #1

Calculation of Present value of project

		Cash flows	P.V.F. @6%	P.V. of cash flows	P.V.F. @8%

Year 0	Investment project cost	-4000000	1	-4000000	1
Year 0	Net working capital changes	-300000	1	-300000	1
Year 1	Operating cashflows	1500000	0.943396	1415094	0.925926
Year 2	Operating cashflows	1500000	0.889996	1334995	0.857339
Year 3	Operating cashflows	1500000	0.839619	1259429	0.793832
Year 3	Net working capital changes	300000	0.839619	251885.8	0.793832
Year 3	Salvage	250000	0.839619	209904.8	0.793832

			NPV =	171308.5

NPV is positive at 6% and 8% discount rate, project should be accepted. answer B

At 10% discount rate project should not be accepted.

Answer 2

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