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1. Net present value (NPV) Evaluating cash flows with the NPV method The not present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment dedsions. Consider this case: Suppose Blue Hamster Manufacturing Inc. is evaluating proposed capital budgeting project (project Beta) that will require an initial Investment of $2,500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 Year 2 5275,000 $450,000 3400,000 Year Year 4 3450,000 Hamster Manufacturing Inc 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 Betas NPV) Ch 11: Assignment - The Basics of Capital Budgeting Blue Hamster Manufacturing Inc.'s welghted 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? $1,258,714 -$3,741,286 0-$1.241.286 $966,286 Making the accept or reject decision Blue Hamster Manufacturing Incus decision to accept or reject project seta is independent of its decisions on other projects. If the firm follows the NPV project Beta method, it should Suppose your boss has asked you to analyze two mutually exclusive projects-project A and project B. Both projects require the same investment amount and the sum of cash inflows of Project A is larger than the sum of cash inflows of project B. A coworker told you that you don't need to do an TV analysis of the projects because you already know that project will have a larger NPV than project 8. Do you agree with your coworker's statement o the NPU calculation is based on percentage retums, to the size of a projects cash flows does not affect a projects NPW. No, the coolation will take into account not only the projects cash innows but also the timing of cash Intlows and outflow Consequently, project could have a larger NPV than project A even though project has aro cash inflowe

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