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 this case: Suppose Lumbering 0x Truckmakers is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The projest is expected to generate the following net cash flows: The company's weighted average cost of capital is 94, and project Beta has the same risk as the firms average project. Based on the cash fows, what is project Beta's NFV? 51,156,83251,631,83251,366,160$4,631,032 The company's weighted average cost of capital is 9%, and project Beta has the same risk as the firm's average project. Based on the cash fiows, What is project Beta's NPV? $1,156,832$1,631,832$1,368,168$4,631,832 Making the accept or reject decision Lumbering Ox Truckmakers'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 don't need to do an NPV analysis 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? Yes, project A will always have the largest NPV, 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 flows does not affect a project's NPV. No, the NPV calculation will take into account not only the projects' cash inflows but also the timing of cash inflows and outllows. Consequently, project B could have a Isrger NPV than project A, even though profect A has larger cash inflows