Eddison Electronics Company

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LEASE PROVIDED ORIGINAL WORK, 1800+ WORDS WITH APA FORMAT and EXCEL SPREADSHEET, AND 3+ REFERENCES

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

 

  • 7 years ago
Eddison Electronics Company
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