Question: 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

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 Beta) that will require an initial investment of $3,225,000. The project is expected to generate the following net cash flows:

Year

Cash Flow
Year 1 $300,000
Year 2 $450,000
Year 3 $500,000
Year 4 $475,000

Black Sheep Broadcasting Companys cost of capital is 8%, and project Beta has the same risk as the firms average project. Based on the cash flows, what is project Betas NPV?

-$1,515,364

-$1,340,364

-$2,178,437

-$1,815,364

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