4. Internal rate of return (IRR) 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 the case of Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (prolect sigma) that will require an initial investment of $900,000. The company has been baine capitat budgeting dedstons on a profect's NFV; however, tts new cro wants to start using the IRR method for capital budgeting dedsions. The CFO says that the IRe is a better method because returns in percentape form are easier to understand and compare to required returns. Falcon Freight's WACC is 9%, and project Sigma has the same tisk as the firm's average project. The profect it expected to generate the following net eash flows: Which of the following is the correct calculation of project sigma s tres? 24.54% 23185 21.8246 27,27% If this is an independent project, the IRR method states that the firm should project sioma. If mutually exdutive prolects are proposed that both have an IFR greater than the necessary WACC, the iRR method states that the firm should accept: If thas is an independent project, the IRR method states that the firm should project Sigma. If mutually exclusive projects are proposed that both have an IRR greater than the necessary WACC, the IRR method states that the firm should accept: the project with the greater future cash inflows, assuming that both projects have the same rick as the firm y average project. the prolect with the greatest 1rR, assuming that both prolects have the same risk as the firm's averape project