The internal rate of reture (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 Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000 Falcon Freight has been basing capital budgeting decisions on a project's NPV however, its new CFO wants to start using the TRR method for capital budgeting decisions. The CFO says that the IRR is better method because returns in percentage form are easier to understand and compare to required returns, Falcon Freights WACCI 7%, 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 $275,000 Year 2 $400,000 Year 3 $500,000 Year 4 5400,000 Type here to search O 33 452 PM 1V11/2001 Which of the following is the correct calculation of project Sigma's IRR? 34.20% 27.95% 29.54% 31.099 If this is an independent project, the IRR method states that the firm should If mutually exclusive projects are proposed that both have an IRR greater than the necessary WACC, the IRR method states that the firm should accept: The project with the greatest IRR, assuming that both projects have the same risk as the firm's average project The project that requires the lowest Initial Investment, assuming that both projects have the same risk as the firm's average project The project with the greater future cash inflows, assuming that both projects have the same risk as the firm's average project