Question
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
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 Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows:
| Year | Cash Flow |
|---|---|
| Year 1 | $275,000 |
| Year 2 | $500,000 |
| Year 3 | $475,000 |
| Year 4 | $425,000 |
Blue Hamster Manufacturing Inc.s weighted average cost of capital is 10%, and project Beta has the same risk as the firms average project. Based on the cash flows, what is project Betas NPV?
-$1,427,546
-$1,189,622
-$764,622
-$3,689,622
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Corporate Finance Principles And Practice
Authors: Denzil Watson, Antony Head
5th Edition
0273725343, 978-0273725343
