Category T0 T1 T2 T3 Investment -$3,605,000 Net working capital change -$ 236,000 $ 236,000 Operating...

Category	T0	T1	T2	T3
Investment	-$3,605,000
Net working capital change	-$ 236,000			$ 236,000
Operating cash flow		$1,483,000	$1,483,000	$1,483,000
Salvage				$ 287,000

Should Brawn accept or reject this project at an adjusted WACC of 7.347.34%, 9.349.34%, or 11.3411.34%?

Solutions

Expert Solution

Statement showing NPV at 7.34%

Particulars	0	1	2	3	NPV
Investment	-3605000
Net working capital change	-236,000			236,000
Operating cash flow		1483000	1483000	1483000
Salvage				287,000
Total Cash flow	-3841000	1483000	1483000	2006000
PVIF @ 7.34%	1.0000	0.9316	0.8679	0.8086
PV =Total cash flow*PVIF	-3841000	1381591	1287117	1621982	449690.5

Statement showing NPV at 9.34%

Particulars	0	1	2	3	NPV
Investment	-3605000
Net working capital change	-236,000			236,000
Operating cash flow		1483000	1483000	1483000
Salvage				287,000
Total Cash flow	-3841000	1483000	1483000	2006000
PVIF @ 9.34%	1.0000	0.9146	0.8365	0.7650
PV =Total cash flow*PVIF	-3841000	1356320	1240461	1534595	290375.2

Statement showing NPV at 11.34%

Particulars	0	1	2	3	NPV
Investment	-3605000
Net working capital change	-236,000			236,000
Operating cash flow		1483000	1483000	1483000
Salvage				287,000
Total Cash flow	-3841000	1483000	1483000	2006000
PVIF @ 11.34%	1.0000	0.8981	0.8067	0.7245
PV =Total cash flow*PVIF	-3841000	1331956	1196296	1453374	140626

Thus he should select project at all WACC

jeff jeffy answered 8 months ago

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