Ch $11$: Assignment $-$ The Basics of Capital Budgeting

Blue Llama Mining Company is evaluating a proposed capital budgeting project $($project Delta$)$ that will require an initial investment of $$1,500,000.$

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 percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is $10\%,$ and project Delta 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$$$350,000$

Year $2$$$475,000$

Year $3$$$400,000$

Year $4$$$475,000$