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 Blue Hamster Manufaquring Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year $425,000 Year 4 $400,000 Blue Hamuter Manufacturing Inc's weighted average cost of capital is 9, and project Alpha has the same risk on the firm's average project. Based on the cash flow, what is project Alpha's net present Value (NPV)? 5444.491 $1,144,491 1944,491 1971,165 Making the accept or reject decision Blue Hamster Manufacturing Ine's decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha Which of the following statements best explains what it means when a propect has an NPV of 50% When a project has an NPV of 50, the project is earning a rate of return equal to the project's weighted average cost of capital, Its ok to accept a project with an NPV of so, because the project is earning the required minimum rate of return When a project has an MPV of 50, the project is earning a rate of return less than the project's weighted average cost of capital. It's ok to accept the project, as long as the project's profit is positive When a project has an NPV of 50, the project is earning a profit of $0. A firm should reject any project with an NPV of 50, because the project is not profitable