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:

Suppose Green Caterpillar Garden Supplies Inc. 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:

Green Caterpillar Garden Supplies Inc.$\text{'}$s weighted average cost of capital is $7\%,$ 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$)?$

$$1,478,131$

$$1,453,131$

$$1,153,601$

$$1,003,131$