and RetumF Aplia: S The net present value (NPV) rule is considered one of the mo

Question

and RetumF Aplia: S 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 Lumbering Ox Truckmakers is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $425,000 Year 3 $475,000 Year 4 $450,000 Lumbering Ox Truckmakers's weighted average cost of capital is 7%, 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)? O $1,175,231 O $1,404,359 O $1,126,263 O $979,359 Making the accept or reject decision Lumbering Ox Truckmakers'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. accept reject Flash Mayer MAC 29,0,0,113 Grade It Now MacBook Pro

Explanation / Answer

CALCULATION OF THE NPV OF THE PROJECT ALPHA Years Cash Flow PVF @ 7%   Present Value   0 -450000                       1.0000 $               -4,50,000 1 350000                       0.9346 $                 3,27,103 2 425000                       0.8734 $                 3,71,211 3 475000                       0.8163 $                 3,87,741 4 450000                       0.7629 $                 3,43,303 $                 9,79,359 Answer = Present Value = Option 4 = $               9,79,359 If the firm follow the NPV method it shoulf be Accept Project Alpha

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