THIS IS FOR FIN 3403

Ch 11: Assignment - The Basics of Capital Budgeting 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Cute Camel Woodcraft Company 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 Cash Flow Year 1 $375,000 $450,000 Year 2 Year 3 $500,000 Year 4 $450,000 Alpha has the same risk as the firm's average proj Based Cute Camel Woodcraft Company's ghted average cost of capital is 10%, and on the cash flows, what is project Alpha's net present value (NPV)? O $972,696 $1,395,823 $845,823 O $1,220,823 Making the accept or reject decision Cute Camel Woodcraft Company'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 of $0? When a project has an NPV of $0, the project is earning 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 $0, 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. When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK to Making the accept or reject decision Cute Camel Woodcraft Company'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 reject is best explains what it means when a project has an NPV of $0? accept When a proje NPV of $0, the project is earning 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. O 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 so, because the project is not profitable. When a project has an NPV of 50, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK to accept a project with an NPV of $0, because the project is earning the required minimum rate of return