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The internal rate of return (IRR) refers to the compound annualrate of return that a project generates based on its up-front costand subsequent cash flows. Consider this case:Falcon Freight is evaluating a proposed capital budgetingproject (project Delta) that will require an initial investment of$1,450,000. Falcon Freight has been basing capital budgetingdecisions on a project’s NPV; however, its new CFO wants to startusing the IRR method for capital budgeting decisions. The CFO saysthat the IRR is a better method because percentages and returns areeasier to understand and to compare to required returns. FalconFreight’s WACC is 9%, and project Delta has the same risk as thefirm’s average project.The project is expected to generate the following net cashflows:Year Cash FlowYear 1 $275,000Year 2 $450,000Year 3 $475,000Year 4 $500,000Which of the following is the correct calculation of projectDelta’s IRR?6.44%6.13%7.36%4.90%If this is an independent project, the IRR method states thatthe firm should ______If the project’s cost of capital were to increase, how wouldthat affect the IRR?The IRR would not change.The IRR would decrease.The IRR would increase.there should be 3 answers