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 this case! Blue Lama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial Investment of $1,600,000 Blue Lama 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 percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta 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 Cash Flow $350,000 $475,000 $425,000 $500,000 Year 3 Year 4 Which of the following is the correct calculation of project Delta's IRR? 0 3.34% 4.05% 3.52% 3.87%