Which of the following is the correct calculation of project Delta's IRR?3.18%3.37%3.55%3.74%If this is an independent project, the IRR method states that the firm shouldIf the project's cost of capital were to increase, how would that affect the IRR?The IRR would decrease.The IRR would increase.The IRR would not change. The internal rate of return (IRR) refers to the compound annual rate of return that a projectgenerates based on its up-front cost and subsequent cash flows. Consider this case:Blue Llama Mining Company is evaluating a proposed capital budgeting project (projectDelta) that will require an initial investment of $1,500,000.Blue Llama Mining Company has been basing capital budgeting decisions on a project'sNPV; however, its new CFO wants to start using the IRR method for capital budgetingdecisions. The CFO says that the IRR is a better method because percentages and returnsare easier to understand and to compare to required returns. Blue Llama Mining Company'sWACC is 9%, and project Delta has the same risk as the firm's average project.The project is expected to generate the following net cash flows:Year Cash FlowYear 1 $325,000Year 2 $450,000Year 3 $400,000Year 4 $475,000

The internal rate of return (IRR) is a metric used in financial analysis to estimate the…

hich of the following is the correct calculation of project Delta's IRR? 3.18% 3.37% 3.55% 3.74% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to increase, how would that affect the IRR?

hich of the following is the correct calculation of project Delta's IRR? 3.18% 3.37% 3.55% 3.74% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to increase, how would that affect the IRR?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Which of the following is the correct calculation of project Delta's IRR?
3.18%
3.37%
3.55%
3.74%
If this is an independent project, the IRR method states that the firm should
If the project's cost of capital were to increase, how would that affect the IRR?
The IRR would decrease.
The IRR would increase.
The IRR would not change.

The internal rate of return (IRR) refers to the compound annual rate of return that a project
generates based on its up-front cost and subsequent cash flows. Consider this case:
Blue Llama Mining Company is evaluating a proposed capital budgeting project (project
Delta) that will require an initial investment of $1,500,000.
Blue Llama Mining Company has been basing capital budgeting decisions on a project's
NPV; however, its new CFO wants to start using the 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. Blue Llama Mining Company's
WACC is 9%, and project Delta has the same risk as the firm's average project.
The project is expected to generate the following net cash flows:
Year Cash Flow
Year 1 $325,000
Year 2 $450,000
Year 3 $400,000
Year 4 $475,000

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