Evaluating cash flows with the NPV method The net present valde (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 $3,225,000. The project is expected to generate the following net cash flows: Blve Hamater Manufacturing Incis weighted average cosk of capral is 10%, and peoject Beta has the same risk as the firms average project. Based on the cash flows, what is project Beta's NPv? 51,017,941+51,342,94151,317,94151,492,941 Blue Hamster Manufacturing Inci's weighted average cost of capital is 10%, and project Beta has the same risk as the firm's average project. Based on the coish flows, what is project Beta's NPV? $1,817,941$1,342,941$1,317,941$1,492,941 Making the accept or reject decision Blve Hamster Manufocturing fncis decision to occept 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 andyze 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 larper than the sum of cash inflows of project B. A coworker told you that you dont need to do an NpV analvis of the projects because you already know that project A will have a larger NPV than project 8 , Do you ogree with your coworker's statement? No, the NPV calculation will take into account not only the projects' cash innows but also the timing of cash infows and outflows. Consequentiy, project B could have a larger NPy than project A, even though project A has larger cash inflows. No, the NPV calculation is based on percentage returns, so the sue of a project's cash flows does not arfect a project's NPV. Yes, project A wil always have the largest NPV, because its cash infiows are greatec than project Bs cash inflows