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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 and subsequent cash nows. Consider the case of Blue Llama Mining Company Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial Investment of $900,000 Blue Liama Mining company has been basing capital budgeting decisions on a project's NPV; however, its new Cho 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 formare 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 Year 1 Cash Flow $325,000 $450,000 Year 2 Year 3 $425,000 $450,000 Year 4 Which of the following is the correct calculation of project Sigma's IR? 27.93% 0.32124 30.729 25.14 If this is an independent project, the IRR method states that the firm should If the projects cost of capital were to increase, how would that affect the TRR? The IRR would increase The would not change The IRR would decrease