You are evaluating a 5-year branch and digital servicing investment for a mid-sized retail banking business, and the investment committee wants to understand how macroeconomic conditions should change the decision. Management built the original case six months ago using a lower discount rate and stronger loan growth assumptions; since then, Treasury yields, inflation, and expected credit losses have moved higher. You have been asked to refresh the valuation using a simple DCF framework and explain whether the project still clears the bank's hurdle rate. Assume USD and after-tax free cash flow.
| Metric | Original Case | Updated Macro Case |
|---|---|---|
| Initial investment (Year 0) | $120,000,000 | $120,000,000 |
| Year 1 free cash flow | $28,000,000 | $24,000,000 |
| Annual FCF growth, Years 2-5 | 4.0% | 1.0% |
| Terminal growth rate | 2.5% | 2.0% |
| Discount rate | 8.0% | 10.0% |
How do the macro changes alter the project's valuation, and would you recommend approving the investment now or deferring it? Ground your answer in the revised NPV and explain which macro variables are doing the most work.