Ziff Corp. is evaluating a proposed capital budgeting projet that will require an initial investment of $1,500,000. The project is expected to generate the following net cash flows:

Year 1 $350,000

Year 2 $475,000

Year 3 $400,000

Year 4 $475,000

Ziff Corp 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 decsions. The CFO says that the IRR is a better method, because percentages and returns are easier to understand and compare to required returns. Ziff Corp's WACC is 10%.

1. What is the IRR? 4.76%, 5.01%, 5.76%, 4.26%

2. If this is an independent project, the IRR method states that the firm should ____________ (accept or reject) the project.

3. If the project's WACC decreased, how would that affect the IRR? (Decrease, Increase or Will Not Change)