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Apply WACC in NPV. Brawn Blenders has the following incremental cash flow for its new? project: Category T0 T1 T2 T3 Investment ??$3,390,000 Net...

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Finance

Apply WACC in NPV. Brawn Blenders has the following incrementalcash flow for its new? project:

Category

T0

T1

T2

T3

Investment

??$3,390,000

Net working capital change

??$279,000

?$279,000

Operating cash flow

?$1,427,000

?$1,427,000

?$1,427,000

Salvage

?$212,000

Should Brawn accept or reject this project at an adjusted WACCof

a) 11.73?%,

b)13.73?%,

or c) 15.73?%?

Answer & Explanation Solved by verified expert
3.7 Ratings (639 Votes)

Cashflow calculation:

Category Investment Net working capital change Operating cash flow Salvage Net cashflow
T0 -      3,390,000 -             279,000 -         3,669,000
T1        1,427,000            1,427,000
T2        1,427,000            1,427,000
T3               279,000        1,427,000    212,000            1,918,000

NPV Calculation

(a)

Time Cashflow PVF @ 11.73% PV
T0 -      3,669,000                  1.0000 -     3,669,000
T1        1,427,000                  0.8950        1,277,186
T2        1,427,000                  0.8011        1,143,100
T3        1,918,000                  0.7170        1,375,116
NPV            126,402

Accept the project

(b)

Time Cashflow PVF @ 13.73% PV
T0 -      3,669,000                  1.0000 -     3,669,000
T1        1,427,000                  0.8793        1,254,726
T2        1,427,000                  0.7731        1,103,250
T3        1,918,000                  0.6798        1,303,838
NPV -              7,186

Reject the project

(c)

Time Cashflow PVF @ 15.73% PV
T0 -      3,669,000                  1.0000 -     3,669,000
T1        1,427,000                  0.8641        1,233,042
T2        1,427,000                  0.7466        1,065,448
T3        1,918,000                  0.6452        1,237,402
NPV -         133,108

Reject the project
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Transcribed Image Text

Apply WACC in NPV. Brawn Blenders has the following incrementalcash flow for its new? project:CategoryT0T1T2T3Investment??$3,390,000Net working capital change??$279,000?$279,000Operating cash flow?$1,427,000?$1,427,000?$1,427,000Salvage?$212,000Should Brawn accept or reject this project at an adjusted WACCofa) 11.73?%,b)13.73?%,or c) 15.73?%?

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