29 Feb Excel Spreadsheet and Essay
6337Deliverable Length: 1 Excel Spreadsheet + 1 paper of 1000-1500 words
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 the 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 show 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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