Applied Managerial Acct 614-1501B-01:The President of EEC recently called a meeting to announce that...

Question

Applied Managerial Acct 614-1501B-01:The President of EEC recently called a meeting to announce that one of the firm's largest supplier 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 the supplier. Based on the following information, calculate net present value (NPV), internal rate of return (IRR), and payback for the investment opportunity.

David · Accepted Answer

Order id: TTs100315_252392_3
1. The following are the relevant information that needs to be analyzed by the company 
management and other staffs when the subject matter of decision making is acquisition of any 
firm: 
 Calculation of financial ratios for example price to earnings ratio. 
 Determination of exchange ratio 
 Analysis of possibility of negotiation in purchases or acquisition and determination of any range 
thereof. 
2. To move forward with such a long term decision making a detailed and strategic analysis is 
required using various methods in the capital budgeting techniques. 
3. The following are the techniques of capital budgeting that may be used for investment decision 
making: 
Internal Rate of Return 
Internal rate of return is defined as the rate at which the present value of all the cash inflows is equal to 
cash outflow. The acceptance criteria for the project is that if the return on project is more than that of 
the IRR calculated,

Applied Managerial Acct 614-1501B-01: The President of EEC recently called a meeting to announce that one of the firm's largest supplier of component parts has approached EEC About a possible purchase...

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