Lunar Tech is considering two projects, both requiring an initial investment of $300,000. The company’s required rate of return is 15%.

Project X:

• Year 1: $100,000
• Year 2: $105,000
• Year 3: $110,000
• Year 4: $120,000

Project Y:

• Year 1: $95,000
• Year 2: $100,000
• Year 3: $105,000
• Year 4: $130,000

a. Compute the payback period for each project. Based on the payback period, which project is preferred?

b. Compute the net present value (NPV) for each project. Based on NPV, which project is preferred?