Evaluating cash flows with the NPV methodThe 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 evaluating a proposed capital budgeting project (project Beta) that will require an initialinvestment of $2,225,000. The project is expected to generate the following net cash flows:YearCash FlowYear 1$350,000Year 2$400,000Year 3$450,000Year 4$425,000Hungry Whale Electronics's weighted average cost of capital is 10%, and project Beta has the same risk as the firm's average project. Based on thecash flows, what is project Beta's NPV?O -$947,867O $1,277,133O -$497,867O -$522,867 cash flows, what is project Beta's NPV?O -$947,867$1,277,133A-ZO -$497,867doficeO -$522,867Making the accept or reject decisionHungry Whale Electronics's decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPVmethod, it shouldproject Beta.Suppose your boss has asked you to analyze two mutually exclusive projects-project A and project B. Both projects require the same investmentamount, and the sum of cash inflows of Project A is larger than the sum of cash inflows of project B. A coworker told you that you don't need to do anNPV 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'sstatement?O Yes, project A will always have the largest NPV, because its cash inflows are greater than project B's cash inflows.O No, the NPV calculation is based on percentage returns, so the size of a project's cash flows does not affect a project's NPV.O No, the NPV calculation will take into account not only the projects' cash inflows but also the timing of cash inflows and outflows.Consequently, project B could have a larger NPV than project A, even though project A has larger cash inflows.

Note : As per the guidelines only first question will be answered.

Answered: pose Hungry Whale Electronics is e…

pose Hungry Whale Electronics is e estment of $2,225,000. The project Year Cash Flow Year 1 $350,000 Year 2 $400,000 Year 3 $450,000

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....

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