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 Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $450,000 Year 3 $475,000 Year 4 $475,000 Green Caterpillar Garden Supplies Inc.’s weighted average cost of capital is 10%, 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)? $871,389 $1,321,389 $1,002,097 $1,045,667 Making the accept or reject decision Green Caterpillar Garden Supplies Inc.’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.

Answer rating: 100% (QA)

Present value of inflowscash inflowPresent value of discou... View the full answer