Acc206 Principles of Accounting: P21-35 Draper Consulting is considering purchasing two

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Acc206 Principles of Accounting

P21-35 Using payback, accounting rate of return, discounted cash flow, and IRR to make capital investment decisions [30-45min]
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 general 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%.

1. Calculate payback period, rate of return, net present value, and IRR for both server investments.
2. Assuming capital rationing applies, which server should Draper invest in?
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