3. Understanding the IRR and NPV The net present value (NPV) and intemal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decor. Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar 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 internal rate of return (IRR) of Project Gamma is 13.84, 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 Gamma. They are: Year Cash Flow Year: 51,800,000 Year 2 $2,375,000 Year 3 53,375,000 Year 4 53,375,000 The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's RR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows quals the discounted value or its cash outflows when the cash flows are discounted using the project's IRI_ 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 8% WAOC. Given the data and hints, Project Gamma's initial investment is dolar). ... and its NPV is (rounded to the nearest whole A project's IRR will the project's cash inflows decrease, and everything dse is unaffected