Evaluating cash flows with the NPV method. The net present value (NPV) nule is considered one of the most common and preferred criteria that generally lead to good investment decisians. Consider this case: Suppose Cold Goose Metal Worls Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of 52,500,000. The project is expected to generate the following net cash flows: Cold Coose Metal Works Inc's weighted average cost of capial is 7 Th, and project Beta has the same risk as the firm's averige project. Based on the cash flows, what is project Beta's NPV? 8603,205 51,028,205 5553.205 5053,205 Making the accept or reject decision Cold Goose Metal Works Inc's decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the Npy method, it should project. Beta. Suppose your boss has asked you to analyze two mutually exclusive projects-project A and project B. Both projects repuire 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' need to do an NPV analysis of the projects because you aiready know that project A will have a larger Npv than project B. Do you agree with your coworker's statement? No, the NPV calculation is based on percentage returns, so the size of a project's cashi flows does not affect a projectss Nir. No. the NPV calculation will take into account not only the prolects Cash inflows but also the timing of cash infiows and outflows. Consequently, project B could have a larger NPV than project A. even though project A has larger cash inflows. Yes. project A will always have the targes NPV, because its cash inflows are greater than project Bs cash inflows