Question: FMA Co. analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took
FMA Co. analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's interest rate. The Fed's action did not affect the forecasted cash flows. By how much did the change in the interest rate affect the project's forecasted NPV? Should the project be accepted? Old interest rate: 10.00% New interest rate: 12% Year 0 1 2 3 Cash flows -$1,200 $400 $500 $600
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