Discuss how the time value of money affects capital budgeting..
The President of EEC recently called a meeting to announce that one of the firms 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. Discuss the following:
- What information will you and your staff need to analyze this investment opportunity?
- What will be your decision-making process? Discuss and evaluate the different techniques that could be used in capital budgeting decisions.
- Specifically, discuss how the time value of money affects capital budgeting. Capital budgeting differs from regular budgeting in that capital budgeting is for large investment decisions like plant expansion. The regular budgeting is for your day-to-day operations decisions.
- Which do you think EEC should use? Why?