Brown’s Industries is considering a project requiring an initial investment of $200,000 followed by annual cash inflows of $45,000 for the next six years. A second six-year project has an initial outlay of $325,000.
a. How much would the second project have to generate in annual cash flows to have the same IRR as the first?
b. If Brown’s cost of capital is 8%, how much would the second project have to generate in annual cash flows to have the same NPV as the first project.
Explain your answers.
a)First Project:Year0123456IRR -2000004500045000450004500045000450009.31% Let Annual cash flow be X for second project to be IRR of 9.31%Outflow = 325000Let outflow = Inflow…