Response to the following problem:
Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow?
Equipment cost (depreciable basis) $65,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0% Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV?
Old WACC: 8.00%
New WACC: 11.25%
Year 0 1 2 3
Cash flows -$1,000 $410 $410 $410