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 decisions Consider this case: Suppose Celestin Crane Cosmetics 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: Year Year 1 Year 2 Cash Flow $300,000 $500,000 $425,000 $425,000 Year 3 Year 4 Celestial Crane Cosmetics's weighted average cost of capitalism and project Alpha has the same nok as the firm' average project. Based on the cash flows, what is project Alpha's netretent value (NPV)? $1,306,214 $506.214 51,356,214 $256,214 Making the accept or reject decision Celestial Crane Cosmetics'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 or $0? When a project has an NPV of $0, the project is earing 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 When a project has an NPV of so, the project is earning a rate of return equal to the project's weighted average cost of capital, les OK to accept a project with an NPV of $0, because the project is coming the required minimum rate of return When a project has an NPV of so, 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