1. Net present value (NPV) Evaluating cash flows with the NPV method The net present vaiue (WPV) rule is considered one of the most common and preferred criteris that generally lead to good irwestment decisions. Consider this case: Suppase Elue Hamater Manufacturing Ine. is evalusting a propased capital budgeting praject (praject Beta) that will require an initis ifvestment of $2,500,000. The praject is expected to generate the fallowing net rash flows: Blue Hamster Manufacturing Inc.'s weighted average cost af capital is 8\%, and project Beta has the same risk as the firm's average project. Based on the cach flows, what is project Beta's NPV? $1,056,084$581,084$531,084$1,267,301 Making the accept or reject decision Blue Hamster Manufacturing Inc.'s decision to acrept or reject praject Beta is independent of its decisions an other prajects. If the firm follaws the NPV method, it should project Bets. Suppose your bass has asked you to anslyze two mutually exclusive projects-praject A and praject B. Bath projects require the same investment amount, and the sum of cash inflows of Project A is larger than the sum af cash inflaws of project B. A coworloer told you that you dont need to do an NPV analyais of the projects because you already know that project A will have a larger NPV than project B. Do you agree with your cowarker's statement? No, the NPV calculation will take intn account not only the projects' cach inflows but also the timing of cash inflows and outflaws. Consequently, project a could have a larger NPV than project A, even though project A has larger cash inflaws. Ves, project A will always have the largest NPV, becsuse its cash inflows are greater than project B's cach inflows. No, the NPV cainulation is based an percentage return, 90 the siae of a project's cash flows does not affect a project's NPV