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2. Internal rate of return (IRR) The internal rate or return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash Hows. Consider this case: Purple Whole Foodstuffs Inc. Is evaluating a proposed capital budgeting project (project Delta) that will require an initial Investment of $1,600,000 Purple Whale Foodstuffs Inc. 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. Purple Whale Foodstuffs Incs WACC is 9%, 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 Year 1 Cash Flow $375,000 $500,000 Year 2 VAR Year 2 $500,000 Year 3 $450,000 Year 4 $475,000 Which of the following is the correct calculation of project Delta's IRR? O 3.79% 4.74% O 5.69% 4.50% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to Increaso, how would that affect the IRR? The IRR would not change. The IRR would increase The IRR would decrease