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 Celestial Crane Cosmetics 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
$300,000
Year 2
$400,000
Year...