$1.$ Net present value $($NPV$)$

Evaluating cash flows with the NPV method

The net present value $($NPV$)$ rule is considered one of the most common and preferred criteria that generally lead to good investment decisions.

Consider this case:

Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project $($project Beta$)$ that will require an initial investment of $$3,000,000.$ The project is expected to generate the following net cash flows:

Year

Cash Flow

Year $1$ $$275,000$

Year $2$ $$475,000$

Year $3$ $$450,000$

Year $4$ $$500,000$

Hungry Whale Electronics$$s weighted average cost of capital is $10\%,$ and project Beta has the same risk as the firm$$s average project. Based on the cash flows, what is project Beta$$s NPV$?$

$$1,322,160$

$-$$$1,677,840$

$-$$$1,202,840$

$-$$$4,677,840$