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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...

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Finance

CategoryT0T1T2T3
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 WACCof 7.347.34?%, 9.349.34?%, or 11.3411.34?%?

Answer & Explanation Solved by verified expert
4.3 Ratings (719 Votes)

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
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CategoryT0T1T2T3Investment-$3,605,000Net working capital change-$   236,000$   236,000Operating cash flow$1,483,000$1,483,000$1,483,000Salvage$   287,000Should Brawn accept or reject this project at an adjusted WACCof 7.347.34?%, 9.349.34?%, or 11.3411.34?%?

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