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: Falcon Freight is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,600,000. 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 percentages and returns are easier to understand and to compare to required returns. Falcon Freight's cost of capital is 7%, 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? Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $425,000 Year 4 $500,000 4.72% O 5.19% 4.96% 3.78% If this is an independent project, the IRR method states that the firm should Grade It Now Save & Continue