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 this case: Consider the following case: Blue Moose Home Builders is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,400,000. Blue Moose Home Builders 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 percentages and returns are easier to understand and to compare to required returns. Blue Moose Home Builders' cost of capital 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: Which of the following is the correct calculation of project Delta's IRR? 4.81% 4.01 % 3.61 % 4.21 %