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 Black Sheep Broadcasting Company is evaluating a proposed copital budgeting project (project Beta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows: Biack Sheep Broadcasting Company's weighted average cost of capital is B\%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? $723,559 $1,148,559 51,351,441 $1,320,843 Making the accept or reject decision Biack Sheep Broadcasting Company's decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should project Bets. Suppose your boss has asked you to analyze two mutuaily exciusive projects-project A and project B. Both projects require the same investment amount, and the sum of cash inflows of Project A is larger than the sum of cash inflows of project B. A coworker told you that you don't need to do an NPV analysis of the projects becsuse you already know that project A will have a larger NPV than project B. Do you agree with your coworker's statement? No, the NPV calculation will take into account not only the projects' cash inflows but also the timing of cash inflews and outflows. Consequently, project B could have a larger NPV than project A, even though project A has larger cash inflows. Yes, project A will always have the largest NPV, because its cash inflows are greater than project B's cash inflows. No, the NPV calculation is based on percentage retums, so the sire of a project's cash flows does not affect a project's NPV