Answer:
B. Choose Project S because its ANPV is $6459
Explanation:
The computation is shown below:
Year Discounting factor at 14% Project R PV of project R Project S PV of project S
0 1 -$40,000 -$40,000 -$58,000 -$58,000
1 0.8772 $20,000 $17,544 $30,000 $26,316
2 0.7695 $20,000 $15,389 $55,000 $42,321
3 0.6750 $20,000 $13,499
4 0.5921 $20,000 $11,842
NPV $18,274 $10,636
where discounting factor for year 1 = 1 ÷ 1.14 = 0.8772
So,
ANPV for project R = 18274 ÷ 2.9137 = $6272
ANPV for project S = 10636 ÷ 1.6467 = $6459
The 2.9137 is cumulative discounting factor for 4 years & 1.6467 is cumulative discounting factor for 2 years at 14%
