Using payback, ARR, NPV, and IRR to make capital investment decisions This problem continues the Piedmont Computer Company situation from Chapter 25. Piedmont Computer Company is considering purchasing two different types of servers. Server A will generate net cash inflows of $25,000 per year and have a zero residual value. Server A’s estimated useful life is three years, and it costs $45,000. Server B will generate net cash inflows of $25,000 in year 1, $15,000 in year 2, and $5,000 in year 3. Server B has a $5,000 residual value and an estimated useful life of three years. Server B also costs $45,000. Piedmont Computer Company’s required rate of return is 14%. Requirements 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. Assuming capital rationing applies, which server should Piedmont Computer Company invest in?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.