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 the case of Hungry Whale Electronics: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: The company's weighted average cost of capital is 8%, and project Apha has the same risk as the firm's average project. Based on the cash flows. What is project Aphak net oresent value (NPV)? 11,416,367 1966,367 5516,367 $1,150,640 Making the accept or reject decision Hungry Whale Electronics'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 project has an NPV of $0 ? When a project has an NPV of $0, the project is earning a profit of \$0. A firm should reject any project with an NPV of $0, because the project is not prontable. When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted averoge cost of capital. It's OK to accept a project with an NPV of so, because the project is earming the required minimum rate of return. When a project has an NPV of $0, the project is earning a rate of return less than the project's weighted average cont of capital, It's OK to accept the project, as long as the project's profit is positive. Making the accept or reject decision Hungry Whale Electronics'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 folio ments best explains what it means when a project has an NPV of $0 ? When Ds an NPY of 50 , the project is earning a profit of 50, A firm should reject any project with an NPV of 50 , because the project is not profitabie. When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK to accegt a project with an NPV of s0, because the project is earning the required minimum rate of return. When a project has an NpY of $0, the project is eaming 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 project's profit is positive
