Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected.
A) -$59.03
B) -$56.08
C) -$53.27
D) -$50.61
E) -$48.08

Question

Quizplus · Accepted Answer

The change in WACC affects the discount rate used in calculating the NPV. A higher WACC would decrease the NPV, while a lower WACC would increase it. The correct choice indicates the change in NPV due to the change in WACC.