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more. 1. Net present value (NPV) Aa Aa Evaluating cash flows with the NPV method The net present value (NPV) ruke is considered one of
more. 1. Net present value (NPV) Aa Aa Evaluating cash flows with the NPV method The net present value (NPV) ruke is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $375,000 $475,000 $450,000 $500,000 Black Sheep Broadcasting Company's weighted average cost of capital is 8%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is project Alpha's net present value (NPV)? $1,079,198 O $1,241,078 $1,554,198 O $1,479,198 Making the accept or reject decision Wack Sheep Hroadcasting Company's decision to accept or reject project Alpha is Independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha Which of the following statements best explains what it means when a project has an NPV of $0? When a project has an NPV of so, the project is earning a profit of 80. A firm should reject any project with an NPV of so, because the project is not profitable. o when a project has an NPV of so, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK to accept a project with an NPV of so, because the project is caring the required minimum rate of return When a project has an NPV of so, the project is caring a rate of return less than the projects weighted average cost of capital. It's OK to accept the project, as long as the project's profit is positive WI Continue without
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