This problem continues the Draper Consulting, Inc., situation from Problem 20-34 of Chapter 20. Draper Consulting is

Question:

This problem continues the Draper Consulting, Inc., situation from Problem 20-34 of Chapter 20. Draper Consulting is considering purchasing two different types of servers. Server A will generate cash inflows of $25,000 per year and has a zero residual value. Server A’s estimated useful life is three years and it costs $40,000. Server B will generate cash inflows of $25,000 in year 1, $11,000 in year 2, and $4,000 in year 3. Server B has a $4,000 residual value and an estimated life of three years. Server B also costs $40,000. Draper’s required rate of return is 14%.
Requirements
1. Calculate payback period, rate of return, , and IRR for both server investments.
2. Assuming applies, which server should Draper invest in?

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