Question

Asked Nov 18, 2019

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Suppose the risk of the company changes based on an unanticipated decrease in the Free Cash Flows by 10% annually during the years 2015, 2016, and 2017.

What are the implications of the change in present value based on risk? In other words, what does the change mean to the company, and how would a financial manager interpret it?

Step 1

The present value is calculated today to determine the present value of future cashflows at the given discount rate.

Step 2

Given:

Interest rate is 8%

Future cash flows for three years are as follows:

Step 3

Explanation:

The change in NPV after 10% dec...

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