The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-frant cost and subsequent cash flows. Consider the case of Grey Fox Aviation Company: Consider the folowing case: Grey Fox Aviation Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $750,000. Grey Fox Avistion Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR methoor capital budgeting decisions. The CFO says that the IRR is a better method returns in percentage form are easier to understand and compare to required returns. Grey Fox Aviation Company's WACC is 10%, and project Sma 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 RR7 Year 1 $350,000 Year 2 $475,000 Year 3 $400,000 Year 4 $475,000 38.95% 9 34.85% 41.00% 32.80% It this is an independent project, the 2RR method states that the firm should If mutually exclusive projects are proposed that both have an 1RR greater then the necessary WACC, the TR8 method states that the firmm should accept O The project thet requires the lowest initial investment, assuming that both projects have the same risk as the 3 5 6 s loc Grey Fox Aviation Company 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. Grey Fox Aviation Company's WACC is 10%, and project signa 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 F Year 1 $350,000 Year 2 $475,000 Year 3 $400,000 Year 4 $475,000 38.95% 34.85% 41.00% 32.80% If this is an independent project, the IRR method states that the firm should if mutually exdusive projects are proposed that both have an IRR greater than the necessary WACC, the IRR method states that the firm should accept O The project that requires the lowest initial investment, assuming that both projects have the same risk as the firm's average project project average praject The project with the greatest RR, assuming that both projects have the same risk as he timny leape O The project with the greater future cash infiows, assuming that both projects have the same risk as the firms 3 4 6