Memo to the president of eec

Assignment Help Finance Basics

Reference no: EM13750526

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

Reference no: EM13750526

Questions Cloud

Read about vocabulary development : You have read about vocabulary development, reading comprehension, and the reading-writing connection. How are all 3 of these related? How are you, as a teacher, going to ensure your students are getting all 3? Be specific and give at least 2 example..

What were some of the influences of the pop art phenomenon : What were some of the influences of the pop art phenomenon? Should we consider the creative elements of popular culture, which are very often mass produced works of art?

Explain how queries are processed by the oracle dbms : Explain how queries are processed by the Oracle DBMS and Explain how transactions are processed by the Oracle DBMS

Describe the project scope and project management plan : Prepare four (4) team-building strategies for handling the newly formed team. Discuss the manner in which the strategies that you have prepared may positively or negatively affect productivity within the company. Describe the project scope and proj..

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

How did japan succeed in keeping europeans largely away : Why and how did Japan succeed in keeping Europeans largely away from its territory in the seventeenth century?

Compare and contrast greek and roman cultures : Compare and Contrast Greek and Roman Cultures. How did the Cycladic, Minoan, and Mycenaean cultures contribute to Greeks' sense of themselves?

The bonds of macronutrients is harvested : Describe how energy stored within the bonds of macronutrients is harvested and converted into high energy bonds of an ATP molecule.

Watch a movie or television show-at least thirty minutes : Watch a movie or television show-at least thirty minutes long, preferably longer. The show can be anything you choose, but it must be a fictional narrative. That is, it should not be a documentary, a reality show, a cooking show, a talk show, a news ..

User Account

All Pages