2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up front cost and subsequent cash flows. Consider this case: Biue toma Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1.500,000 Blue Cama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new Cro wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Lloma Mining Company's WACC IS 94, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Cash Flow Year Year 1 Year 2 5275,000 $400,000 5500.000 $100,000 Year 3