Question
Dunst Consulting is considering purchasing two different types of servers. Server A will generate net cash inflows of $27,000 per year and have a zero
Dunst Consulting is considering purchasing two different types of servers. Server A will generate net cash inflows of $27,000 per year and have a zero residual value. Server A's estimated useful life is three years and it costs $43,000.
Server B will generate net cash inflows of $29,000 in year 1, $10,000 in year 2, and $4,000 in year 3. Server B has a $5,000 residual value and an estimated life of three years. Server B also costs $43,000. Dunst 's required rate of return is 16 %.
Requirements
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. |
2. | Assuming capital rationing applies, which server should Dunst invest in? |
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