Problem:
The Federal Reserve recently shifted its monetary policy, causing Laser Vision's WACC to change. Laser had recently analyzed the project whose cash flows are shown below. However, the CFO wants to reconsider this and all other proposed projects in view of the Fed action. How much did the changed WACC cause the forecasted NPV to change? Assume that the Fed action will not affect the cash flows.
Old WACC = 10%
New WACC = 8%
Year Cash Flows
0 -$1,000
1 $500
2 $520
3 $540