Investment decision discussion - Calculate the pros and cons

Feb 1st, 2014
Business & Finance
Price: $40 USD

Question description

1Excelspread sheet;1,7502000 words

Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.

The President of EEC recently called a meeting to announce that one of the firm’s largest suppliers of component parts has approached EEC about a possible purchase of the supplier. The President has requested that you and your staff analyze the feasibility of acquiring this supplier. Based on the following information, calculate net present value (NPV), internal rate of return (IRR), and payback for the investment opportunity:

  • EEC expects to save $500,000 per year for the next 10 years by purchasing the supplier.
  • EEC’s cost of capital is 14%.
  • EEC believes it can purchase the supplier for $2 million.

Answer the following:

  • Based on your calculations, should EEC acquire the supplier? Why or why not?
  • Which of the techniques (NPV, IRR, payback period) is the most useful tool to use? Why?
  • Which of the techniques (NPV, IRR, payback period) is the least useful tool to use? Why?
  • Would your answer be the same if EEC’s cost of capital were 25%? Why? Why not?
  • Would your answer be the same if EEC did not save $500,000 per year as anticipated?
  • What would be the least amount of savings that would make this investment attractive to EEC?
  • Given this scenario, what is the most EEC would be willing to pay for the supplier?

Prepare a memo to the President of EEC detailing your findings and showing the effects if:

(a) EEC’s cost of capital increases 
(b) the expected savings are less than $500,000 per year 
(c) EEC must pay more than $2 million for the supplier

Tutor Answer

(Top Tutor) Daniel C.
School: Rice University

Studypool has helped 1,244,100 students

Review from our student for this Answer

Feb 3rd, 2014
"Top quality work from this guy! I'll be back!"
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1824 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors