The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on it up-front cost and subsequent cash flows. Consider the case of Grey Fox Aviation Company: Consider the following case: Grey Fox Aviation Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000. Grey Fox Aviation Company has been basing capital budgeting decisions on a project's NPV: however, its new 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 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 Sigma's IRR? Year Cash Flovw Year 1 $275,000 Year 2 $400,000 Year 3 $500,000 Year 4 400,000 27.98% 31.09% 29.54% 24.87%