ULITA 10. Net present value (NPV) 106:23 Evaluating cash flows with the NPV method The net presene value (NPV) rule is considered one of the most common and preferred criteria that generally tend to good investment decisions Consider this case: Suppone Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project project deta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows: 12 Cash Flow $375,000 Year Year 1 Year 2 Year Year 4 $425,000 $500,000 $475,000 Black Sheep Broadcasting Company's weighted average cost of capital is 9%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? -$1,290,787 -51,237,004 $700,656 O $1.075,656 Making the accept or reject decision Black Sheep Broadcasting Company's weighted average cost of capital is 9%, and project Beta has the same rok as the firm's average project. Based on the cash flows, what is project leta's NPV) $1,200,787 1,237,004 -$700,656 -$1,075,656 Making the accept or reject decision Black Sheep roadcasting Company's decision to or reject project lets is independent of its decisions on other projects. If the firm flows the NPV method, it should project beta Suppose your bow has asked you to analyze twe mutually exclusive projects-oject A and projects. Both projects on the same timent amount, and the sum of cows of Project A is larger than the sum of the flow of project. A coworse told you that you don't need to do an NPV analysis of the projects because you already know that project A will have a larger than project. Do you agree with your cowo' statement? Yes, propect we always have the largest NPV, because its cantos are greater than projectes car inom No, the NPV covation is based on percentage retums, so there products can now does not affect are No, the Vation will take into account not only the projects can inflows but also the timing of each intows and draw Content project could have a larger than project A, even though project Alus farger info Save & Continue Continue without saving