# Capital Budgeting Calculations

 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

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