Question: A firm is evaluating two mutually exclusive projects that have unequal lives. The firm's cost of capital has been determined to be 14 percent, and

A firm is evaluating two mutually exclusive projects that have unequal lives. The firm's cost of capital has been determined to be 14 percent, and the projects have the following initial investments and cash flows:

Project R ($) Project S ($)

Initial invest 40,000 58,000

Cash flow yr-1 20,000 30,000

Cash flow yr-1 20,000 55,000

Cash flow yr-1 20,000

The firm must evaluate the projects using the annualized net present value (ANPV) approach and recommend which project they should select.

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