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interest rate

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Paradise Enterprises has gathered projected cash flows for two projects. At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is above this interest rate? Why?

Year Project(I) Project(J) Difference
----------------------------------------------------
0 -$150,000 -$150,000 $0
1 $ 65,000 $ 41,000 $ 24,000
2 $ 52,000 $ 48,000 $ 4,000
3 $ 49,000 $ 64,000 -$15,000
4 $43,000 $ 63,000 -$20,000

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Solution Summary

The interest rate in this case is emphasized.

$2.19