Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $475,000 Year 3 $500,000 Year 4 $450,000

Happy Dog Soap Companys weighted average cost of capital is 7%, and project Alpha has the same risk as the firms average project. Based on the cash flows, what is project Alphas net present value (NPV)?

$946,709

$1,421,709

$1,246,709

$1,088,715

Happy Dog Soap Companys decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should_________

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 $0, the project is earning a rate of return less than the projects weighted average cost of capital. Its OK to accept the project, as long as the projects profit is positive.

When a project has an NPV of $0, the project is earning a profit of $0. A firm should reject any project with an NPV of $0, because the project is not profitable.

When a project has an NPV of $0, the project is earning a rate of return equal to the projects weighted average cost of capital. Its OK to accept a project with an NPV of $0, because the project is earning the required minimum rate of return.