1. Net present value (NPY) Evaluating cash flows with the NPV method The net presenc value (NPV) rule is considered one of the most common and prefierred criteria that generally lead to good investment decislons. Consider this case: Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $600,000. The project is expected to generate the following net cash flows: Celestial Crane Cosmetics's weighted average cost of capital is 8%, and project Alpha has the same risk as the firm's average project. Based on the cosh flows, what is project Alpha's net present value (NPV)? $1,181,478$1,206,478$131,478$731,478 Making the accept or reject decision Celestial Crane Cosmedics's decision to accept or reject project Alpha is indeoendent 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 project has an NPV of $0 ? When a project has an WPV of $0, the project is eaming in rate of return equal to the project's weighted average cost of capital. It's OK to accept a project with an NPV of $0. because the project is earning the required minimum rate of return. When a project has an NPV of $0, the project is eaming a profic of 50 . A firm should reject any project with an NPW of so, because the project is not profitable When a project has an NPV of 50 , the project is earning a rate of return less than the project's welghted average cost of capital. It's ok to accept the project, as long as the projects profit is positive