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2. Net present value (NPV) Aa Aa The capital budgeting process is comprehensive and is based on certain assumptions, or models and benchmarks that a company follows. This process often begins with project analysis. Generally, the first step in project analysis before using any evaluation method is to estimate the 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 Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $550,000. The project is expected to generate the following net cash flows Cash Flow Year $300,000 Year 1 $425,000 Year 2 Year 3 $500,000 Year 4 $475,000 Black Sheep Broadcasting Company'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) O $1.422.109 O s1,372,109 O s872.109 O $1.347.109 Making the accept or reject decision oadcasting Company's decision to accent or reiect project Alpha is independent of its decisions on Black Sheen f S Black Sheep Broadcasting Company'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)? O $1,422,109 O $1,372,109 O $872,109 O $1,347,109 reject decision Making the accept or Black Sheep Broadcasting 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 $07 O When a project has an NPV of $0, the project is earning a rate of return less than the project's weighted average cost of capital. It's OK to accept the project, as long as the project's profit is positive. O 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. O When a project has an NPV of $0, the project is earning a rate of returm equal to the project's weighted average cost of capital. It's OK to accept a project with an NPV of $0, because the project is earning the required minimum rate of return. nn3 4-2016 A e 2013 Cgon g A Orader Now Save & Conrinun Continue without savin Copyright Notices Accessibity Terms of Use Privecy Notice Security Notice