Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000 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 Inc.'s WACC is 7%, 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 Year 2 Year 3 Year 4 Cash Flow $325,000 $450,000 $400,000 $475,000 Which of the following is the correct calculation of project Delta's IRR? 3.74% 4.11% 4.30% 3.18% 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 not change. The IRR would decrease. The IRR would increase. Last Tuesday, Cold Goose Metal Works Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Gamma is 13.2%, but he can't recall how much Cold Goose originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Gamma. They are: Year Cash Flow Year 1 Year 2 Year 3 Year 4 $2,400,000 $4,500,000 $4,500,000 $4,500,000 The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, which means that Project Gamma's net cash flows can be discounted using Cold Goose's 9% WACC. , and its NPV is (rounded to the nearest whole Given the data and hints, Project Gamma's initial investment is dollar). A project's IRR will if the project's cash inflows decrease, and everything else is unaffected. The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would ge t NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when th $13,329,689 discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same $11.938.112 d by the company's average project, which means that Project Gamma's net cash flows can be discounted using WACC. $11,618,551 $11,474,565 , and its NPV is (rounded to the nearest whole Given the data and hints, Project Gamma's initial investment is dollar). A project's IRR will if the project's cash inflows decrease, and everything else is unaffected. The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the d ue of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using t| $1,177,569 | The level of risk exhibited by Project Gamma is the same as that exhibited by the company's $942,055 ct, which means that Project Gamma's net cash flows can be discounted using Cold Goose's 9% WACC. $1,236,447 $1,413,083 , and its NPV is (rounded to the nearest whole Given the data and hints, Project Gamma's initial investment is dollar). A project's IRR will if the project's cash inflows decrease, and everything else is unaffected. The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, which means that Project Gamma's net cash flows can be discounted using Cold Goose's 9% WACC. decrease increase mma's initial investment is and its NPV is (rounded to the nearest whole Given the data and dollar). stay the same A project's IRR will if the project's cash inflows decrease, and everything else is unaffected