Corner Jewelers, Inc. recently analyzed the project whose cash flows are shown below. However, before the company decided to accept or reject the project, the Federal Reserve changed interest rates and therefore the firm's cost of capital (r). The Fed's action did not affect the forecasted cash flows. By how much did the change in the r affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected.
Old r:8.00%New r:11.25% Year0
1
2
3
Cash flows?$1,000
$410
$410
$410
A. ?$59.03
B. ?$56.08
C. ?$53.27
D. ?$50.61
E. ?$48.08
Answer: A
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