The Operation Manager of Hong Kong Aircraft Engineering Company Limited plans to improve the existing service. He has selected two projects for further studies. The following table shows the projected net cash inflows of the two projects over the coming four years.

1. (a) Calculate the payback period (in years) for each project. Show your steps clearly. (5 marks)

2. (b) Complete an evaluation for each project using net present value (NPV) at the discount rate at 18% for Year 1 to Year 4. (12 marks)

3. (c) Based on the results in (b), comment on the two projects and recommend which one or both projects that the Operation Manager should accept and implement. (3 marks)

Question 2 The Operation Manager of Hong Kong Aircraft Engineering Company Limited plans to improve the existing service. He has selected two projects for further studies. The following table shows the projected net cash inflows of the two projects over the coming four years. Project A Project B Year 1 $350,000 $220,000 Year 2 $250,000 $330,000 Year 3 $200,000 $200,000 Year 4. $200,000 $100,000 Under each project, an initial investment of $600,000 is needed and the discount rate is set at 18% per annum. Discount factors for the discount rate at 18% per year are as follows: Year 1 0.8475 Year 2 0.7182 Year 3 0.6086 Year 4 0.5158 Discount Factor