Miss Natalia

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About Miss Natalia

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Elementary,High School,College,University

Expertise:
Accounting,Business & Finance See all
Accounting,Business & Finance,Calculus,Computer Science,Environmental science,Health & Medical Hide all
Teaching Since: Apr 2017
Last Sign in: 359 Weeks Ago, 6 Days Ago
Questions Answered: 6064
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Education

  • Doctor of Education in Educational Leadership with a Specialization in Educational Technology
    Phoniex University
    Oct-1999 - Nov-2005

Experience

  • HR Executive
    a21, Inc.
    Nov-1998 - Dec-2005

Category > Accounting Posted 02 Jun 2017 My Price 10.00

Discuss and evaluate the different techniques that could be used in capital budgeting decisions.

 

 Assignment Description

 

Part 1

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 will you and your staff need to analyze this investment opportunity?
  • What will be your decision-making process? Discuss and evaluate the different techniques that could be used in capital budgeting decisions.
  • Specifically, discuss how the time value of money affects capital budgeting. Capital budgeting differs from regular budgeting in that capital budgeting is for large investment decisions like plant expansion. The regular budgeting is for your day-to-day operations decisions.
  • Which do you think EEC should use? Why?

Part 2

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, or payback period) is the most useful tool to use? Why?
  • Which of the techniques (NPV, IRR, or 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 or 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 that details your findings and shows the effects if any of the following situations are true:

  • EEC’s cost of capital increases.
  • The expected savings are less than $500,000 per year.
  • EEC must pay more than $2 million for the supplier.

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Miss Natalia
(14)
Status NEW Posted 02 Jun 2017 02:06 AM My Price 10.00

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