This is on page 85 Changing the discount rate to 13% instead of 11.20%, and the salvage market value to $15 instead of $5, should have a new NPV of $13.93, instead of $12.08, a difference of $1.85. They say it is $4.5. I see what they are doing in the answer, but I don’t agree. Do you?
you forgot to discount the original project at 13% – if you had done that - it would have been 9.42 now with the new cash flow of 15 at the end - difference would be 4.5 approx.
Word play! I took it that we already have NPV based on 11.20%…now what would NPV be if we change rate to 13% and change initial outlay to $3 billion. Oh well.