2. Internal rate of return (IRR) The intemai rate of etum [AR) refers to the compound annual rate of return that a project generates based on lts up-front cost and subsequent cash flows. Consider this case: Fa con Freight is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of 5 : 600,000 , Faicon Freight 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 savs that the IRR is a better method because percentages and returns are easiel to understand and to compare to required returns. Falcon Freight's WACC is 9 : hand project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Which of the following is the correct calculation of project Delta's IRR? 5.19% 4.25% 5.43% 4.72% If this is an independent project, the IRR method states that the firm should If the oroject's cost of capital were to increase, how would that affect the IRR? The IRR would decrease. The IRR would increase. The IRR would not change