Decision Making and Capital Budgeting

User Generated

yoragvrm

Business Finance

Description

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. Discuss the following:

  • What information is needed to analyze this investment opportunity?
  • What will be your decision-making process?
  • All future costs are relevant in decision making. Do you agree? Why?
  • Capital budgeting decisions fall into 2 broad categories: screening decisions and preference decisions. Discuss this.
  • Which do you think EEC should use—screening decisions or preference decisions? Why?

750-1,000 words

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Running Head: DECISION MAKING AND CAPITAL BUDGETING

Decision Making and Capital Budgeting
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DECISION MAKING AND CAPITAL BUDGETING

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Decision Making and Capital Budgeting
Information needed to analyze the investment
A firm or the management must first look at numerous pieces of data before making any
investments. The most commonly used metrics that measure the soundness of the target entity
include the evaluation of both the net present value (NPV) and the financial statements. ECC, in
this case, must ensure that it looks at the financial statements of the target firm before embarking
on the investment decisions in the context. The financial statements of a company usually tell
more about the firm, such as the expected viability of the business in the future and also the
ability to meet obligations.
Additionally, scrutinizing the financial statem...


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