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 goad investment decisions. Consider the case of Lumbering Ox Truckmakers: Suppose Lumbering Ox Truckmakers is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $4DD,DDD. The projectis expected to generate the following net cash lows Year Cash Flow Year 1 $275,000 Year 2 $450,0DD Year 3 $450,0DD Year 4 $400,000 The company's weighted average cost of capital is 7%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is project Alpha's net present value (NPV)? O $922,54!9 O $1,372,549 O $1,050,931 $522,549 Making the accept or reject decision Lumbering Ox Truckmakers's decision to accept or reject project Alpha is independent ofits dedisions on other projects. If the firm follows the NPV method, it should project Alpha. accept reject Which of the following statements best explains what it eans when a project has an NPV of O when a project has an NPV of $o, the project is eaming a profit of $0. A firm should reject any project with an NPV of $o, because the project is not profitable. O when a project has an NPV of $0, the project is eaming a rate of retum equal to the project's weighbed average cost of capital. It's OK to accepta project with an NPVW of $o, because the project is eaming the required minimum rate of retum. O when a project has an NPV of $0, the project is eaming a rate of retum less than the project's weighted average cost of capital. It's OK to acceptthe project, as long as the project's profit is positive