Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 million, and expected cash inflows of $455,000 per year in years 1, 2, and 3. However, before the decision to accept or reject the project, the Federal Reserve took monetary action that lowered interest rates and changed the firm's WACC from 10% to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV? Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although decimal places are okay), with no special characters.
Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 million, and expected cash inflows of $455,000 per year in years 1, 2, and 3. However, before the decision to accept or reject the project, the Federal Reserve took monetary action that lowered interest rates and changed the firm's WACC from 10% to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV? Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although decimal places are okay), with no special characters.
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 18P
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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![Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 million, and expected cash
inflows of $455,000 per year in years 1, 2, and 3. However, before the decision to accept or reject the
project, the Federal Reserve took monetary action that lowered interest rates and changed the firm's WACC
from 10% to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV?
Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although
decimal places are okay), with no special characters.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fea7f9626-cbeb-40dd-89e8-5820cd6fdc7e%2F5711b234-ff9f-4902-a51e-d77525073b03%2Ft4jgtlv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Last month, Dow Chemical analyzed a project with an initial cash outflow of $1 million, and expected cash
inflows of $455,000 per year in years 1, 2, and 3. However, before the decision to accept or reject the
project, the Federal Reserve took monetary action that lowered interest rates and changed the firm's WACC
from 10% to 9.5%. By how much did this change in the WACC affect the project's forecasted NPV?
Your answer should be a positive number between 8132 and 12047, rounded to even dollars (although
decimal places are okay), with no special characters.
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