Understanding the IRR and NPV 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 Cute Camel Woodcraft Company: Last Tuesday, Cute Camel Woodcraft Company 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 Omicron is 11.3%, but he can't recall how much Cute Camel 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 Omicron. They are: The CFO has asked you to compute Project Omicron's initial investment using the information currently avaliable to you. He has offered the following suggestions and observations: The CFO has asked you to compute Project Omicron's initial investment using the information currently availabie to you. He has offered the followin 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 outflows - when the cash flows are discounted using the project's IRR. - The level of risk exhibited by Project Omicron is the same as that exhibited by the company's average project, which means that Project Omicron's net cash flows can be discounted using Cute Camel's 8% WACC. Given the data and hints, Project Omicron's initial investment is dollar). and its NPV is (rounded to the nearest whole A project's IRR will If the project's cash inflows increase, and everything else is unaffected. - A project's IRR represents the return the project would ganarsm ...than ita NPV is zero or the discounted value of its cash inflo equals the discounted value of its cash outflows-when tt discounted using the project's IRR. - The level of risk exhibited by Project Omicron is the same Project Omicron's net cash flows can be discounted using I by the company's average project, which means th WACC. Given the data and hints, Project Omicron's initial investment is dollar). and its NPV is (rounded to the ne. A project's IRR wiII If the project's cash inflows increase, and everything else is unaffected. you to compute Project Omicron's initial investment using the information currently avallable to you. He has offered the bservations: IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows discounted value of its cash outflows - when the cash flows are discounted using th $714,904 RR. of risk exhibited by Project Omicron is the same as that exhibited by the company's $893,630 ject, which means that micron's net cash flows can be discounted using Cute Camel's 8% WACC. IRR will if the project's cash inflows increase, and everything else is unaffected. Project Omicron's net cash flows can be discounted using Cute Camel's 8% WACC. Given the data and dollar). A project's IRR will licron's initial investment is , and its NPV is if the project's cash inflows increase, and everything else is unaffected