3. Understanding the IRR and NPV Aa Aa The nat present value (NP) and Internal rate of return (IRR) methods of Investmert analysis are Interrelated and are sometimes used together to make capital budgeting decisians. Consider the case of Green Coterpillar Gardan Supplies Inc. Last Tuesday, Green Caterpillar Garden Supplies Inc. lost port on of its planning and fnancial data vhen both its main and its backup servers crashed. The company's CFO remenbers that the internal rate of return (IRR) of Prajct Delta is 13.8%, but he can't recall how much Green Caterpillar originally invested in the project nor the project's net present value (NPV). However, he found a note that deta led the annual net cash flows expected to be generated by Project Delta. They are: Year Cash Flow Year1 $2,000,000 Year 2 $3,750,000 Year 3 $3,750,a0a Year4 $3,750,000 The CFo has asked you to compute Project Delta's Initlal Investment using the Information curreny avallable to you. He has offered the following suggestions and observations: .A project's IRR represents the return the project would generate when its NPV is zero or the discnunted value of its cash inflows equals the discounted value of its cash autflows-when the cash tows are discounted using the project's IRR. The level af risk exhibited by Project Delta is the same as that exhibited by the compary's average project, which means that Project Delta's net cash flows can be discounted using Green Caterpillar's 9% WACC. Given the data and hints, Project Delta's initial investment is rounded to the nearest ahale dollar). , and its NPV is A project's IRR wll if the project's cash inflows increase, and everything else is unaffected. Flash Paw VaN 31,0,0,153 3 3.34.1 9 2004-2016 Aia. Al rigtb nu rade It Naw Search Window