10. 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 Manufacturing inc, is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of 53,225,000. The project is expected to generate the following net cash flows: Biue Hamster Manufacturing Inc.'s weighted average cost of capital is 7%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? $2,174,228$1,413,143$1,811,857$5,036,857 Making the accept or reject decision Blue Hamster Manufactunng tncis 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 Beta. Suppose your boss has asked you to analyze two mutually exclusive 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 because you already know that project A wilt have a larger NPV than project B. Do you agree with your cowarker's statement