Colorado Technical University
To: EEC President
Company Memo This memo has been constructed for the purpose of reporting information the president of the company in reflection the purchasing of a supplier in the near future. It reflects information concerning Calculate Net Present (NPV), Internal Rate of Return (IRR), along with the payback of the investment opportunity. In this company memo the following information will be discussed:
$500,000 savings per year for the next 10 years.
EEC’s cost of capital/14%.
EEC’s purchase of the supplying company for $ 2 million.
The focus of EEC’s investment of the purchasing of the supplier is to cut down on the cost expenditures of the company. The primary board members and investors anticipate in the timeframe the fifth of to save financially in revenue $600,000 per annum this will accumulate $9 million in net in the timeframe of that 15 years. 14% of that investment and consumption cost will be attributed out of $9 million net, which adds up to sum of $3 million. The president of the company asked me to give an analysis in the possibilities foreseen in the investment what would be the Net Present Value, along with the Internal Rate of Return, and the payback of the investment.
Net Present Value (NPV)
NPV is a process in which a company makes an analysis of pros and cons when making investments. Companies use this analysis due to the fact of its efficiency and effectiveness which assist those involved in the investment to perceive the future of that investment. Some of the many benefits in using the technique in NPV when making investment 's for a company is the negative and positive outcome and its effects on the company 's investment, which can determine whether it is a good idea to venture in the investment of the company.
The sum of the analysis of EEC investment would be $3 million of which EEC assessment would
References: Needles, B. E. (2010). Managerial Accounting. Florida: Cengage Learning. Warren, C. S. (2013). Managerial Accounting. Chicago: Cengage Learning.