Dean Consulting is considering purchasing two different types of servers. Server A will generate net cash inflows
Question:
Dean Consulting is considering purchasing two different types of servers. Server A will generate net cash inflows of $20,000 per year and have a zero residual value. Server A's estimated useful life is three years and it costs $36,000.
Server B will generate net cash inflows of $20,000 in year 1, $12,000 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 $36,000. Dean 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 Dean invest in? |
Managing Controlling and Improving Quality
ISBN: 978-0471697916
1st edition
Authors: Douglas C. Montgomery, Cheryl L. Jennings, Michele E. Pfund