The fragrance Divisional Manager is likely to favor Option 2, despite its lower NPV, because it yields a higher ROI and RI during the first two years. Since the manager is due to retire at the beginning of Year 3, their decision will be influenced by short-term personal interests, specifically maximizing their performance bonus and retirement benefits, which are based on ROI and RI in the first two years.

Board Perspective:
From the board’s perspective, the focus is on the long-term financial health and value creation for the company. The board would likely reject Option 2 because it underperforms in the later years and results in lower overall NPV, which does not align with the company’s objective of achieving sustainable returns exceeding 16%. Option 1, with its higher NPV, would be the better long-term choice for the company despite its lower short-term performance.