Blue Llama Mining Company is evaluating a proposed capital budgeting project $($project Sigma$)$ that will require an initial investment of

$$900,000.$

Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using

the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are

easier to understand and compare to required returns. Blue Llama Mining Company's WACC is $9\%,$ and project Sigma has the same risk

as the firm's average project.

The project is expected to generate the following net cash flows:

Year Cash Flow

Year $1$$$300,000$

Year $2$$$425,000$

Year $3$$$475,000$

Year $4$$$450,000$

Which of the following is the correct calculation of project Sigma's IRR?

$23\mathrm{.}18\%$

$27\mathrm{.}27\%$

$24\mathrm{.}54\%$

$30\mathrm{.}00\%$

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 IRR?

The IRR would increase.

The IRR would not change.

The IRR would decrease.