Investment Opportunity

Deliverable Length: 1 Excel spreadsheet and 1 paper of 1,500-2,000 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 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