t4 q 14 last month standard systems analyzed the project whose cash fl
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T4-Q#14
Last month, Standard Systems analyzed the project whose cash flows are shown below. However, before
the decision to accept or reject the project took place, the Federal Reserve changed interest rates and
therefore the firm's cost of capital (r). The Fed'e action did not affect the forecasted cash flows. By how
much did the change in the r affect the project's forecasted NPV? Note that a project's expected NPV can
be negative, in which case it should be rejected.
Old r.
Year
10.00%
New 1:
11.25%
0
1
2
3
Cash flows
-$1,000
$410
$410
$410
a. -$19.88
O b. -$22.03
O c. -$23.13
O d. -$20.93
O e. -$18.89