80.2K

Verified Solution

Link Copied!

1. Net 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 investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluatirig a proposed capital budgeting project (jroject Alpha) that will require an initiol investment of $550,000. The project is expected to generate the following net cash flows: Hungry Whale Eiectronics's weighted average cost of capital is 10%, and project Apha has the same risk as the firm's overage project. Based on the cash flows, what is project Alpha's net present value (NPV)? 5282,453 5998,944 $832,453 51,332,453 Making the accept or reject decision Hungry Whale Electronics'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 50 ? 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 so, 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 preject is earning the required minimum rate of return. When a project has an NPV of $0, the project is earning a rate of return less then the project's weighted average cost of capital, It's OK to accept the project, as long as the project's profit is positive

Answer & Explanation Solved by verified expert

See Answer