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Which server should daniels invest in

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Reference no: EM132577579

Using payback, ARR, NPV, and IRR to make capital investment decisions

Daniels Consulting is considering purchasing two different types of servers. Server A will generate net cash inflows of $26,000 per year and have a zero residual value. Server A's estimated useful life is three years, and it costs $44,000.Server B will generate net cash inflows of $28,000 in year 1, $11,000 in year 2, and $5,000 in year 3. Server B has a $5,000 residual value and an estimated life of three years. Server B also costs $44,000. Daniels's required rate of return is 14%.

Requirements

Question 1: Calculate payback, accounting rate of return, net present value, and internal rate of return for both server investments. Use Microsoft Excel to calculate NPV and IRR

Question 2: Assuming capital rationing applies, which server should Daniels invest in?

Reference no: EM132577579

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