Question 1 (28 marks) Silicon Co. is a start-up company. It is now considering implementing one out of two mutually exclusive projects in the next month. The details about the two projects are as follows: Project A The initial cost is $2,000,000. After that, the company can receive $700,000 each year from year 1 to year 3. The cash flow will drop to $200,000 in year 4. Project B The initial cost is $2,200,000. The company can receive $400,000, $450,000, $500,000 and $1,800,000 from year 1 to 4 respectively. Assume that the required return of Silicon Co. is 6%.

a) Calculate payback period of the two projects. Which project should the company choose? Explain your answer.

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