Hungry Whale Electronics's weighted average cost of capital is 9%, and project Alphe has the same risk as the firm's average project. Besed on the

Question

cash flows, what is project Alpha's net present value (NPV)?

Ⓒ$344,489

O $1,319,489

Ⓒ$971,162

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 $07

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

O 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

accept a project with an NPV of $0, because the project is earning the required minimum rate of return.

Ch 11- Assignment - The Basics of Capital Budgeting

2. Internal rate of return (IRR)

The internal rate of return (RR) refers to the compound annual rate of return that a project generates based

flows. Consider the case of Blue Lama Mining Company

Blue Lea Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of

front cost and subsequent cash

Blue Lama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using

the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage farmare

easier to understand and compare to required retums. Blue Llama Mining Company's WACC is 9%, and project Sigma has the same risk

on the femmy average project

The project is expected to generate the following not cash flow

Year Cash Flow

Year 1

$325,000

Year 2

$450,000

Year 3 $425,000

Your $450,000