3. Understanding the IRR and NPV Aa Aa E Understanding the relationship between NPV and IRR The NPV and IRR methods are interrelated and are sometimes used together to make capital budgeting decisions. Consider this case: Incom Corp. lost a lot of its accounting information because of a problem with its electronic record-keeping system. Its CFO knows that the IRR of project Alpha is 13.2%; however, the CFO does not know how much Incom Corp. originally invested in the project. The cash flows for project Alpha are listed as follows: Year Cash Flow Year 1 $300,000 Year 2 $450,000 Year 3 $450,000 Year 4 $475,000 The finance team is trying to calculate the initial investment using the information available to them. IRR is the cost of capital at which NPV equals $0. Using this information, the initial investment of the project turns out to be Project Alpha has the same risk as a firm's average project. The company has a WACC of 9%. Based on this information, the project's NPV is