3. Understanding the IRR and NPV The net present value (NPV) and internal rate of neturn (IRR) methods of investment analysis are interretated and are sometimes used together make capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc:: Last Tuesday, Green Caterpiliar Garden Supplies inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the intemal rate of return (IRR) of Project Gamma is 13.2%, 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 detailed the annual net cash flows expected to be generated by Project Gammo. They are: The CFO has asked you to compute Project Gamma's initial investment using the information curfentiy ayallable to you, He has offered the follo suggestions and observations: The CFO has asked you to compute Project Gamma's initial Investment using the information currently avallable to you. He has offered the following suggestions and observations: - A project's IRR ropresents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. - The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, which means that Project Gamma's net cash flows can be discounted using Green Caterpillar's 9es WacC. Given the data and hints, Project Gamma's initial investment is and its NPV is (rounded to the nearest whole olibr]. A project's 1RR wil If the project's cash inflows decrease, and everything else is unaffected