The capital budgeting process is comprehensive and is based on certain assumptions, models, and benchmarks. this process often begins with a project analysis. generally, the first step in a capital budgeting project analysis—which occurs before any evaluation method is applied—involves estimating the a, b or c

a- revenues from all new projects
b- project's expected cash flows
c- company's net income

evaluating cash flows with the npv method.

the net present value (npv) rule is considered one of the most common—and preferred—methods for identifying good investments.

consider the following case:

suppose cute camel woodcraft company is evaluating a proposed capital budgeting project (project beta) that will require an initial investment of $2,225,000. the project is expected to generate the following net cash flows:

year cash flow
year 1 $350,000
year 2 500,000
year 3 450,000
year 4 500,000
cute camel’s weighted average cost of capital is 8.00%, and project beta has the same risk as the firm’s average project. based on the cash flows, what is project beta’s npv?

a- $-2,972,517
b- $-747,517
c- $-397,517
d- $-297,517

making the accept or reject decision.

cute camel’s decision to accept or reject project beta is independent of its decisions on other projects. if the firm follows the npv method, it should project beta.

a- reject
b- accept