1. 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 deciaions. Consider this case: Suppose Fuzzy Button Clothing 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: Fuxzy Button Clothing Company's welghted average cost of capital is 10%, and project Apha has the same risk as the firmis average project. Based the cash flows, what is project Alpha's net present value (NPV)? Making the accept or reject decision Fuzzy Button Clothing 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 s0? When a project has an NPV of 50 , the project is earning a rate of refuin less than the project's weighted average cost of capital. It' ok to accept the project, as long as the project's profit is positive. When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted average cost of capital. Ity OK to accept a project with an NPV of 50 , because the project is earning the required minimum rate of return. When a project has an NPV of $0, the project is earning a profic of $0. A firm should reject any project with an NoV of 50 , because the project is not profitable