3. Understanding the IRR and NPV The net present value (NPV) and internal rate of retum (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc: Last Tuesday, Green Caterplilar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers croshed. The company's CFO remembers that the internal rate of return (IRR) of Project Zeta is 14.6\%, but he can z recall how much Green Caterpillar originally invested in the project nor the project's net present value (NPV). However, he found a note that detalled the annual net cash flows expected to be generated by Project Zeta. They are: The CFO has asked you to compute Project Zetar's inital investment using the information currently available to you. He has offered the following suggestions and observations: - A projects IRR represents the retum the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outhows-when the cash flows are discounted using the project's IRR. - The level of nisk exhibited by Project Zeta is the same as that exhbited by the company's average project, Which means that Project Zeta's net cash fows can be discounted using Green Caterpillar's B\% WACC. Given the data and hints, Project Zetax initial inrestment is doliar). , and its NPV is (rounded to the nearest whole A project's tar wat If the project's cash inflows decrease, and everything else is unaflected