Handy Enterprises has gathered projected cash flows for two projects.

Year Project I Project J
0 –$215,000 –$215,000
1 104,000 75,000
2 93,000 86,000
3 79,000 96,000
4 72,000 105,000

Requirement 1:
At what interest rate would the company be indifferent between the two projects? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Interest rate: %

I`m Rick James

To determine the interest rate at which Handy Enterprises would be indifferent between the two projects, we need to calculate the net present value (NPV) for each project at various interest rates.

1. Calculate the NPV for Project I and Project J at different interest rates:
- Start with an assumed interest rate.
- Calculate the present value of each projected cash flow using the formula: PV = CF / (1 + r)^t, where PV is the present value, CF is the cash flow, r is the interest rate, and t is the time period.
- Sum up the present values of all the cash flows for each project to get the NPV.

2. Compare the NPV for both projects at different interest rates.
- Determine the interest rate at which the NPV for both projects is equal.

3. Round the resulting interest rate to two decimal places.

Let's calculate the NPV at different interest rates for Project I and Project J:

Assuming an interest rate of 10%:
Project I:
NPV = (-215,000 / (1 + 0.10)^0) + (104,000 / (1 + 0.10)^1) + (93,000 / (1 + 0.10)^2) + (79,000 / (1 + 0.10)^3) + (72,000 / (1 + 0.10)^4)

Project J:
NPV = (-215,000 / (1 + 0.10)^0) + (75,000 / (1 + 0.10)^1) + (86,000 / (1 + 0.10)^2) + (96,000 / (1 + 0.10)^3) + (105,000 / (1 + 0.10)^4)

Repeat these calculations for different interest rates, such as 11%, 12%, and so on, until you find the interest rate that makes the NPV of both projects equal.

Once you find the interest rate that results in equal NPVs for both projects, round the interest rate to two decimal places as your answer.