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 Blue Hamster Manufacturing Inc. Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Blue Hamster 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. Blue Hamster's WACC is 8.00%, 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 3 450,000 Year 4 425,000 Project Sigma has an IRR of If this is an independent project, the IRR method states that the firm should project Sigma