Capital Budgeting Calculations

HELP.docx

1 Excel
spreadsheet; 1,750–2000 words

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.

Capital
Budgeting Calculations MUST BE IN THE BELOW FORMAT

You are to calculate NPV, IRR and Payback for the
supplier purchase and decide based on your calculations whether or not you should
purchase the supplier.  You also need to
discuss which of the three methods is the most reliable and explain why.  You need to revise your calculations based on
the new data.

I. 
Introductory Paragraph

II. 
Capital Budgeting Calculations –
Original Data

a.  NPV

b.  IRR

c.  Payback

d.  Analysis
and Decision of whether to accept or reject the project

III. 
Capital Budgeting Calculations –
Increased Cost of Capital

a.  NPV

b.  IRR

c.  Payback

d.  Analysis
and Decision of whether to accept or reject the project

IV. 
Capital Budgeting Calculations – Less
than 500,000 in Savings

a.  NPV

b.  IRR

c.  Payback

d.  Analysis
and Decision of whether to accept or reject the project

V. 
Capital Budgeting Calculations – Paying
more than 2 million

a.  NPV

b.  IRR

c.  Payback

d.  Analysis
and Decision of whether to accept or reject the project

VI. 
Discuss how much savings can decrease
and you accept the project,  and how much
more you will be willing to pay to accept the 
project

VII. 
Conclusion

VIII. 
References