2. Internal rate of return (TRR) 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 Pendl Publishing Blue Penal Publishing is evaluating a proposed capital budgeting project (project stoma) that will require an initial investment of $350,000 Blue Pencil Publishing 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 is a better method because returns in percentage formare casier to understand and compare to required retums, Blue Pencil Publishing's WACC is 9%, and project sioma has the same risk as the firm's average project The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year Cash Flow $375,000 $500,000 $450,000 $475,000 Year Which of the following is the correct calculation of project Sigma's IRRY 29.60 37.00% 0.3330 044409 33.500 44.40% 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 IRA reject project Sigma accept project Sigma The IRR would increase. The IRR would not change. The IRR would decrease