The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Falcon Freight: Consider the following case: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000 Falcon Freight 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 returns in percentage form are easier to understand and compare to required returns. Falcon Freight's cost of capital is 8%, 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 Sigma's IRR? Year Cash Flow Year1 $300,000 Year 2 $425,000 Year 3 $400,000 Year 4 $425,000 O 27.53% O 23.40% O 26.15% O 22.02% If this is an independent project, the IRR method states that the firm should