Ch 11- Assignment - The Basics of Capital Budgeting Year 2 Year 3 Year 4 $450,000 $425,000 $450,000 Which of the following is the correct calculation of project Sigma's R O 27.93% Ⓒ 32.12% Ⓒ 30.72% Ⓒ25.14% 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 IR The IRR would increase The IRR would not change. The IRR would decrease Ch 11- Assignment - The Basics of Capital Budgeting 3. Understanding the IRR and NPV Year Cash Flow Year 1 Year 2 Year 3 Year 4 accept project Sigma reject project Sigma 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 Blue Hamster Manufacturing Inc.: $1,800,000 $3,375,000 Grade It Now Last Tuesday, Blue Hamster Manufacturing Inc. 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 Delta is 11.3%, but he can't recall how much Blue Hamster 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 Delta. They are: $3,375,000 $3,375,000 Save & Continue Continue without saving

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