Net Present Value

1. Nek 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 imvestment decisions. Consider this case: Supgose Limbering Ox. Truckmakers is evaluating a proposcd capital budgeting project (project Beta) that will requere an indial irvestrment of $3,225,000. The project is expected to generate the following net cash flows: Wambering Qx. Trockanakeas's weighted average cost at capital is By, and project lseta han the samte risk as the firmik average projeck, Dased on thie confi flows, what is project Heta' Nipre 52,121,27051,267,72551,317,72551,767,725 Lumbering 0x Truckmakers's decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should project-Beta. Suppose your boss has asked you to analyze two mutually exdusive projects-project A and project 8 . Both projets require the same investment amount, and the sum of cash inflows of Project A is larger than the sumn of cash inflows of project B. A coworker rold you that you don't need to do an NPV analysis of the projects because you already know that project A will have a Larger NpV than project B. Do you agree with your coworker's statement? No, the NPV calculation will take into account not only the projects' cash inflows but also the tarning of cash inflews and outflows. Consequently, project B could have a larger NPV than project A, even though project A has larger cash inilows. No, the Npy calculation is based on percentage returns, so the sue of a project's cash flows does not affect a project's NpV. Yes, project A wil always have the lacgest NPV, because its cash inflows are greater than project B's cash inflows. 1. Nek 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 imvestment decisions. Consider this case: Supgose Limbering Ox. Truckmakers is evaluating a proposcd capital budgeting project (project Beta) that will requere an indial irvestrment of $3,225,000. The project is expected to generate the following net cash flows: Wambering Qx. Trockanakeas's weighted average cost at capital is By, and project lseta han the samte risk as the firmik average projeck, Dased on thie confi flows, what is project Heta' Nipre 52,121,27051,267,72551,317,72551,767,725 Lumbering 0x Truckmakers's decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should project-Beta. Suppose your boss has asked you to analyze two mutually exdusive projects-project A and project 8 . Both projets require the same investment amount, and the sum of cash inflows of Project A is larger than the sumn of cash inflows of project B. A coworker rold you that you don't need to do an NPV analysis of the projects because you already know that project A will have a Larger NpV than project B. Do you agree with your coworker's statement? No, the NPV calculation will take into account not only the projects' cash inflows but also the tarning of cash inflews and outflows. Consequently, project B could have a larger NPV than project A, even though project A has larger cash inilows. No, the Npy calculation is based on percentage returns, so the sue of a project's cash flows does not affect a project's NpV. Yes, project A wil always have the lacgest NPV, because its cash inflows are greater than project B's cash inflows