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 the case of Blue Lama Mining Company: Blue Lama Mining Company is evaluating a proposed capital budgeting project (profect Sigma) that will reguire an initial investment of $800,000. Blue Ulama 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 form are easier to understand and compare to required returns. Blue Lama Mining Company's WACC is 7%, and project Sigma has the same risk as the firm's average project. The profect is expected to generate the following net cash flows: Which of the following is the correct calculation of project Sigma's IRR? 27.969 26.43% 32.64% 31,000 The project is expected to generate the following net cash flows: Which of the following is the correct calculation of project Sigma's IRR? 27.98% 26.43% 32.64% 31.09% If this is an independent project, the IRR method states that the firm should. If the project's cost of capital were to increase, how would that affect the IR: The IRR would not change. The IRR would increase. The IRR would decrease