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you and your staff analyze the feasibility of acquiring this supplier. Discuss the following: What information...

you and your staff analyze the feasibility of acquiring this supplier. Discuss the following:

  • What information is needed to analyze this investment opportunity?
  • What will be your decision-making process?
  • All future costs are relevant in decision making. Do you agree? Why?
  • Capital budgeting decisions fall into 2 broad categories: screening decisions and preference decisions. Discuss this.
  • Which do you think should use—screening decisions or preference decisions? Why?

PLEASE USE DETAILS

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Answer #1

Ans.1. Information is needed to analyze this investment opportunity are as follows:

(i) Cost of investment

(ii) The cash flow expected out of the investment

(iii) The net present value of the investment

(iv) The opportunity cost

Ans.2. My decision-making process will be as follows:

(i) Feasibility study

(ii) List various alternatives

(iii) Evaluate alternatives

(iv) Select the best alternative

Ans.3. All future costs are relevant in decision making. I disagree with the statement as the future costs which are committed are irrelevant.

Ans.4. Screening Decision- Listing and evaluating of alternatives.

Preference Decision- What the business wants to do.

Ans.5. I would use screening decision as it gives a more pragmatic approach.

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