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?%?

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