Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generaily lead to good investment decisions. Consider this case: Suppose Blue Hamster Manufacturing Ine. is evaluating a propesed capital budgeting project (project Deta) that will require an iniclat investment of 32,225,000. The project is expected to generate the following net cash flows: Elue Mamster Manufacturing Ineis weighted average cost of capital is 7w, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? $1,423,6315376,36953,026,3695801,369 Blve Hamster Manufacturing Inc.'s 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 dont need to do an NPV antalysis of the projects because you already know that project A will have a larger NPV than project B. Do you agree with your coworker's statement? No, the NPV calculation will take into account not onily the projects' cash inflows but also the timing of cash inflows and outflows. Consequently, project B could have a larger NPV than project A, even though project A has farger cash inflows. Yes, project A will always have the largest NPY, because its cash inflows are greater than project B's cash inflows. No, the NPV calculation is based on percentage returns, so the size of a project's cash llows does not affect a project's NPW