The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Gamma is 13.2%, but he can't recall how much Green Caterpillar originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Gamma. They are: Year Cash Flow 52,400,000 Year 1 Year 2 $4,500,000 Year 3 $4,500,000 $4,500,000 Year 4 The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflowswhen the cash flows are discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, which means that Project Gamma's net cash flows can be discounted using Green Caterpillar's 9% WACC. A project's IRR represents the return the project would getown NPV is zero the discounted value of its cash inflows equals the discounted value of its cash outflows-when th $13,329,689 discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same d by the company's average project, which means that $11,474,565 Project Gamma's net cash flows can be discounted using r's 9% WACC. $11.938,112 $11,618,551 and its NPV is (rounded to the nearest whole Given the data and hints, Project Gamma's initial investment is dollar). A project's IRR represents the return the project would generate when its NPV is zero or the directed... lue of its cash inflows equals the discounted value of its cash outflows when the cash flows are discounted using t $1,235,447 The level of risk exhibited by Project Gamma is the same as that exhibited by the company's t, which means that Project Gamma's net cash flows can be discounted using Green Caterpillar's 9% WACC. $1,177,569 $1,354,204 $1,295,326 and its NPV is Given the data and hints, Project Gamma's initial investment is dollar). (rounded to the nearest whole increase and its NPV is (rounded to the nearest whole Given the data and stay the same mma's initial investment is dollar). decrease A project's IRR will if the project's cash inflows decrease, and everything else is unaffected