Attempts Keep the Highest / 3 2. 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 an flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investm $1,500,000 Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to star the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the risk as the firm's average project. The project is expected to generate the following net cash flows: Year Year 1 Cash Flow $350,000 Year 2 $475,000 $400,000 Year 3 Year 4 $475,000 Which of the following is the correct calculation of project Delta's IRR? 06.01% O 4.26% 5.01% O 5.26% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to increase, how would that affect the IR accept project Delta reject project Delta The IRR would increase The IRR would decrease. The IRR would not change