Corner Jewelers, Inc. recently analyzed the project whose cash flows are shown below. However, before the...

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Finance

Corner Jewelers, Inc. recently analyzed the project whose cashflows are shown below. However, before the company decided toaccept or reject the project, the Federal Reserve changed interestrates and therefore the firm's cost of capital (r). The Fed'saction did not affect the forecasted cash flows. By how much didthe change in the r affect the project's forecasted NPV? Note thata project's expected NPV can be negative, in which case it shouldbe rejected.
Old r. 8.00% New r. 11.25%
Year
0
1
2
3
Cash flows
?$1,000
$410
$410
$410

Answer & Explanation Solved by verified expert

4.1 Ratings (748 Votes)

Solution NPV of the project at old rate of Cost of capital of 8 5661NPV of the project at new rate of Cost of Capital See Answer

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Corner Jewelers, Inc. recently analyzed the project whose cashflows are shown below. However, before the company decided toaccept or reject the project, the Federal Reserve changed interestrates and therefore the firm's cost of capital (r). The Fed'saction did not affect the forecasted cash flows. By how much didthe change in the r affect the project's forecasted NPV? Note thata project's expected NPV can be negative, in which case it shouldbe rejected.Old r.8.00%New r.11.25%Year0123Cash flows?$1,000$410$410$410

Old r.	8.00%	New r.	11.25%
Year	0	1	2	3
Cash flows	?$1,000	$410	$410	$410