Making the accept or reject decision

Cute Camel Woodcraft Companys 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 projectsproject 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 analysis of the projects because you already know that project A will have a larger NPV than project B. Do you agree with your coworkers statement?

No, the NPV calculation will take into account not only 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 larger cash inflows.

Yes, project A will always have the largest NPV, because its cash inflows are greater than project Bs cash inflows.

No, the NPV calculation is based on percentage returns, so the size of a projects cash flows does not affect a projects NPV.