Evaluating cash flows with the NPV methed The net present value (WFy) rule is contidered one of the most common and preferred ciaters that generally lead to good imestrient decioions Consider this case: Suppose Green Coterpiliar Garden Seopblies lnc, is evaluating a propesed capital budgeting peoject (project Beta) that will require an intial imvestenent of 52,225,000. The project is expected to generake the following oet cach flowes: Grean Coterpillar Corden Supplies Incis weighted bverage cost of eagital is 7wh, and project Beta has the same nisk as the firm's average project Baied ein the cast floss, what is project deta's NPY? Making the accept or reject decision Ciremen Caterpillbr Gatrden. Supplies Inch decision to acoept or reject project Beta is independent of its decisam an ether projects. If the ferm toldaw Gireen Caterpilar Garden Supplies inc:s weighted average cost of capital is 7hy, and project Beta bas the same tisk as the firm's average project. Bured or the canh fiowy, what is project iter Npy? 43,004,5264304,526$935,431$779,526 Making the accept or reject decisien Whe filme inethod, it should areject beta Siuppose vour boss hat asked vou to analve two mulually encluske projects-project A and project b. Both prejecta require the aame investmient armount, atid the aum of cash inflows of Project A is iarger than the sum of cash inflown of peoject 8 . A conorker tod you that you don't neeit to do an. NPW analyiis of the prejects because you already know that project A will have a taroer Npy than project B. Do vou agree with your coworkeri statement? No, the APV calculation is based on percentage returns, so the size of a project's carsh flows dsen not aftect a project's Niry. No, the NPY calculation will take into accocunt not only the projecti' cesh inflows but also the timving of cash indlows and outflowi. Consequently, project 13 could have a larger NpV than project A, even though project A has larger cash intfows. Yes, project A wial atways have the largest NPN, because its cash intlows are greater than project B's cash inflows