mike and lucy are facing an important d the two computer engineers felt it was t next stage - decide which of two possible Both had a bachelor degree in engineerin a large chip manufacturing company. Ab stock options. That was when they decid starting a venture of their own. In their s on some research into a new chip that co this point, the design of the chip was co performance of their design, any delay in the established players might introduce a the time to act if at all. They estimated that they would need to : As for future cash flows, they felt that th their product at dirt-cheap prices in orde: had established a name for itself, the price in its current form was likely to be obsolet and patented could be sold to a larger ! budding entrepreneurs estimated the cash Project A ( picture ) 

fernative to pursuing this project would be to immediately sell the patent for their innovative hip design to one of the established chip makers. They estimated that they would receive around $200,000 for this. It would probably not be reasonable to expect much more as neither their product nor their innovative approach had a track record. invest in some plant and equipment that would test silicon wafers for zircon content erm They could the before the wafers were used to make chips. Too much zircon would affect the long-t performance of the chips. The task of checking the level of zircon was currently being performed by chip makers themselves. However, many of them, especially the smaller ones, did not have the capacity to permit 100% checking. Most tested only a sample of the wafers they received. Ali and Fatema were confident that they could persuade at least some of the chip makers to outsource this function to them. By exclusively specializing in this task, their little company would be able to slash costs by more than half, and thus allow the chip manufacturers to go in for 100% quality check for roughly the same cost as what they were incurring for a partial quality check today. The life t project B) is expected to be only about five years. of this project too (call he initial investment for this project is estimated at  1,100,000. After taking into account the sale of their patent, the net investment would be $900,000. As for the future, Ali and Fatema were pretty sure that there would be sizable profits in the first couple of years. But thereafter, the zircon content problem would slowly start to disappear with advancing technology in the wafer industry. Keeping all this in mind, they estimate the cash flows for this project as follows: Project B Year Expected Cash flows ($)  (900000) 1 year 750000 2nd year 600000 3rd year 500000 4th year 400000 5 th year 200000 Ali_ and Fatema now need to make their decision. For purposes of analysis, they plan to use a required rate of return of 20% for both projects. Ideally, they would prefer that the project they choose have a payback period of less than 3.5 years and a discounted payback period of less than 4 years. Evaluate both the projects based on Capital Budgeting techniques and Mention the most feasible project to invest as per the above mentioned techniques. 

0 1st year Project A Year Expected Cash flows ($) (1000000 40000 2nd year 200000 3 rd year 500000 4th year 1000000 5 th year 1300000 0 1st year Project A Year Expected Cash flows ($) (1000000 40000 2nd year 200000 3 rd year 500000 4th year 1000000 5 th year 1300000