Understanding the relationship between NPV and IRR The NPV and IRR methods are interrelated and are sometimes used together to make capital budgeting decisions Consider this case: General Products Co. lost a lot of its accounting information because of a problem with its electronic record-keeping system. Its CFO knows that the IRR of project Alpha is 13.8%; however, the CFO does not know how much General Products Co. originally invested in the project. The cash flows for project Alpha are listed as follows: Year Cash Flow Year $300,000 Year 2 $425,000 Year 3 $450,000 Year 4 $400,000 The finance team is trying to calculate the initial investment using the information available to them. IRR is the cost of capital at which NPV equals $0. Using this information, the initial investment of the project turns out to be $1,245,479 Project All $1,152,003 $1,135,637 e risk as a firm's average project. informati a WACC of 7%. Based on this NPV is $1,180,925