Three Waters Co$.$ is evaluating a proposed capital budgeting project that will require an initial investment of $$1,300,000.$ The project is expected to

generate the following net cash flows:

Three Waters Co$.$ has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the internal rate of return

$($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. Three Waters Co$.\text{'}$s desired rate of return is $6\%.$

Which of the following is the IRR of the project?

$4\mathrm{.}80\%$

$6\mathrm{.}00\%$

$7\mathrm{.}63\%$

$8\mathrm{.}63\%$

If this is an independent project, the IRR method states that the firm should

the project.

If the project's desired rate of return decreased, how would that affect the IRR?

The IRR will increase.

The IRR will decrease.

The IRR will not change.