The internal rate of return (IRR) refers to the compound annual rate of retum that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Pendil Publishing is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,450,000. The company has been basing capital budgeting dedisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting dedisions. The CFO says that the IRR is a better method because percentages and retums are easier to understand and to compare to required retums. Blue Pendil Publishing's WACC is 10%, 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 Cash Flow Year 1 $275,000 Year 2 $40D,0DD Year 3 $450,ODD Year 4 $425,000 which of the following is the correct calculation of project Delta's IRR? 2.93% o 2.17% 2.30% o 2.55% If this is an independent project, the IRR method states that the firm should project Delta. If the project's cost of capital were to increase, how would that affect the IRR? O The IRR would decrease. O The IRR would not change. The IRR would increase