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2. Net present value (NPV) The capital budgeting process is comprehensive and is based on certain assumptions, or models and benchmarks that a company follows.
2. Net present value (NPV) The capital budgeting process is comprehensive and is based on certain assumptions, or models and benchmarks that a company follows. This process often begins with project analysis. Generally, the first step in project analysis before using any evaluation method is to estimate theproject's expected cash flows revenues from all new projects company's net income project's expected cash flows Evaluating cash flows 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 Cute Camel Woodcraft Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $400,000 Year 4 $500,000 Cute Camel woodcraft Company's weighted average cost of capital is 8%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? O -$2,007,366 O -$4,672,805 O -$1,247,805 O -$1,672,805
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