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Net present value ( NPV ) Evaluating cash flows with the NPV method The net present value ( NPV ) rule is considered one of
Net present value NPV
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:
Widget Corp. is evaluating a proposed capital budgeting project project Alpha that will require an initial investment of $ The
project is expected to generate the following net cash flows:
Widget Corp.s weighted average cost of capital is and project Alpha has the same risk as the firm's average project. Based on the cash flows,
what is project Alpha's NPV
$
$
$
$
Making the accept or reject decision
Widget Corp.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.
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