Using the Cash Payback, ARR, NPV, PVI (Present Value Index), and IRR to make a capital decision on buying a new server for the company.

DATA:

PIEDMONT'S EXPECTED RATE OF RETURN FOR EITHER PURCHASE = 14%

PIEDMONT USES THE STRAIGHT-LINE METHOD OF DEPRECIATION (for annual depreciation = (Cost of Asset - Residual Value of Option) / Useful Life).

Book Value at end of Useful Life = Cost of Asset - Accum. Depreciation for the 3 years of useful life for either server option.

SERVER A:

COST OF ASSET AT TIME OF PURCHASE = $45,000

Annual Net Cash Inflow = $25,000 per year

Expected Residual Value (money expected to receive when selling server at end of the useful life) = $0

Useful Life = 3 years

SERVER B:

COST OF ASSET AT TIME OF PURCHASE = $45,000

Net Cash Flow Year 1 = $25,000

Net Cash Flow Year 2 = $15,000

Net Cash Flow Year 3 = $ 5,000

Expected Residual Value (money expected to receive when selling server at end of the useful life) = $5,000

Useful Life = 3 years

REQUIREMENTS (Must use attached Capital Investment Analysis WorkbookTemplate, with formulas and cell locators where needed, to complete the quantitative portion and then include the overall answer, in-depth of why you picked the best investment in the final worksheet in the template.):

1. Use the ATTACHED Capital Investment Analysis Excel Template to complete the full analysis for each of the 5 methods.

2. Based on the quantitative results from requirement 1, what server should Piedmont buy and why.

3. What other qualitative factors might be considered in a final decision made by management.