4. Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Cute Camel Wooderaft Company: Last Tuesday, Cute Camel Wooderaft Company lost a portion of its planning and financial data when both its main and its backup servers erashed. The company's CFO remembers that the internal rate of return (IRR) of Project Zets is 14.6\%, but he can't recall how much Cute Camel 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 Zeta. They are: The CFO has asked you to compute Project Zeta's initial investment using the information currently available 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 discounted value of its cash inflows equals the discounted value of its cash outhlows-when the cash flows are discounted using the project's IRR. - The level of risk exhibited by Project Zets is the same as that exhibited by the company's average project, which means that Project Zeta's net eash flows can be discounted using Cute Camel's g\% WACC. Given the dats and hints, Project Zeta's initial investment is , and its NPV is (rounded to the nearest whole dollar). A project's IRR. will if the project's cash inflows decrease, and everything else is unaffected