The internal rate of return (IRR) refers the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Moose Home Builders: Consider the following case: Blue Moose Home Builders is evaluating a proposed capital budgeting Sigma) that will require an initial investment of $800,000. Blue Moose Home Builders has been basing capital budgeting decisions on a project's NPV; however, its new CFD wants to start using the IRR method for capital budgeting decisions. The CFD says that the IRR is a better method because returns in percentage form are easier to understand and compare required returns. Blue Moose Home Builder's WACC is 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: Which of the following is the correct calculation of project Cash Flow Sigma IRR7 2487 % 29.54% 26.43% 31.09% 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