Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will...
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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 8%, 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 $275,000 Year 2 $400,000 Year 3 Year 4 $500,000 $400,000 Which of the following is the correct calculation of project Delta's IRR? O 1.86% 01.77% O 2.14% 1.95% If this is an independent project, the IRR method states that the firm should
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