1. Net present value (NPV) Evaluating Cash flows with the NPV method The net present value (NPV) ruke is considered one of the most common arnd preferred criteria that generally lead to good investment decisions: Consider this case: Suppose Fuzzy Button Clothing Company is evaluating a proposed copital budgeting project (project Becta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows: Fuzzy Button Clothing Company'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? 51,168,773$868,773$1,331,227 Furry Buthon Clothing Company's weighted average cost of capital is 10%, and project feta has the same risk as the firm's average project. Based on the cast flows, what is project Beta's NPV? $1,168,773$868,773$1,331,227$3,668,773 Making the accept or reject decision Fuzry Button Clothing Company's decision to accept of reject project Beta is independent of its ifecisions on other projects. If the firm follows the NpV method, it should project Beta. Suppose your boss has akked you to analyze two mutually exdusive projects-propect A and project B. Both projects require the sarne irivestment 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 NPN analysis of the projects because you already know that project A will have a larger Npy than project B. Do you agree with your coworker's statement? No, the NPV calculation is based on percentage returns, so the size of a project's cash fllows does not affect a project's NpV. No, the NPV calculation will take into account not only the projects' cash inflows but also the timing of cash inflows and outlows. 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 larpest NPV, because its cash inflows are greater than project B's cash inflows