accounting-The purpose of this memorandum is to evaluate each of the investment opportunities

QUESTION

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FirstRate Company

M E M O R A N D U M

Date:

[Date Submitted]

To:

Paul
Samuelson, President and CEO

From:

[Your name]

Subject:

Investment
Recommendations

Purpose

The
purpose of this memorandum is to evaluate each of the investment
opportunities set forth below using present value concepts and present my
recommendations based on my financial calculations and other factors that
warrant your consideration.
I
understand that, based on my recommendations, the company will allocate up to
$1,000,000 of available capital to
the superior investment opportunities.
The required rate of return (discount rate) for new investments by the
company is 10.0 percent. For the purposes of this analysis, I have ignored income taxes, as
instructed.

Summary and
Conclusion(Limit
the length of your summary and conclusions to a maximum of 150 words)

Please provide your word
count here

Your summary and conclusions
(please do not modify the formatting, fonts, colors, and so forth in this
document template)

(Continued)

Description of Investment Alternatives Analyzed

Investment alternative 1:
Purchase an additional fabrication machine
that will allow the company to expand output of its principal product

The cost of the machine is $250,000. I expect the machine to generate the
following additional future end-of-year operating cash inflows:
Year 1: $150,000
Year 2: $100,000
Year 3:
$60,000
I do not expect the machine to have a
residual value at the end of its three-year useful life.

Investment alternative 2:
Purchase a business that is a major
supplier of key raw materials used by the company in manufacturing its
principal product

The owner of the supplier firm has
indicated that he would be willing to sell his business for $500,000. I expect this âvertical integrationâ of the
company to result in reduced material costs totaling $75,000 annually for the
next 15 years. I do not expect these
savings to continue after 15 years.

Investment alternative 3:
Replace certain manufacturing equipment
with new equipment that would produce cleaner emissions from operations

The cost of the low-emission (replacement)
equipment is $50,000 for each of the companyâs two existing production lines,
totaling $100,000 if the company installed the equipment in both production
lines. While the company must comply
with certain EPA regulations limiting release of certain pollutants into the
atmosphere, based on relevant emission measurements made by the company,
those regulations do not presently require the company to install the new
equipment. There do not appear to be additional
revenue or cost savings that the new equipment will generate.

Investment alternative 4:
Purchase undeveloped land zoned for
commercial use

A land broker has indicated that she
expects future economic development in the community where the land is
located to lead to substantial appreciation in the landâs value over the next
decade. The cost of the land is
$200,000. While management does not
expect to develop the land for use in the companyâs operations, I estimate
the value of the land will appreciate by approximately 11.25 percent annually
during the next five years to $341,000.

Investment alternative 5:
Purchase a bank certificate of deposit (CD)

The largest bank serving the companyâs
local business community is currently offering an interest rate of 5.5
percent on three-year CDs. The bank
pays interest on its CDs to depositors annually. The companyâs investment policy limits
deposits in any individual bank to a maximum of $300,000.

Investment
alternative 6:

Repay
an existing bank loan outstanding

The
company has a $200,000 loan outstanding from a local community bank. The interest rate on the loan is 11.5
percent (fixed). Interest payments on
the loan are due at the end of each year and the loan balance matures in full
in five years.

(Continued)

Present Value Calculations and Other Factors Warranting
Consideration(Limit
the length of your analysis of each investment alternative to a maximum of 100 words, excluding present value calculations)

Investment
alternative 1:

Purchase
an additional fabrication machine that will allow the company to expand
output of its principal product

Please describe your present
value calculations, here (for example, âThe net present value [NPV] of this
investment is $1,000, representing the total present value, $1,900, of $500
cash to be received at the end of each of the next 5 years, less the cost of
the initial investment of $900.â)

Please provide your narrative
analysis of this investment alternative, here, including any additional
financial or nonfinancial factors warranting consideration

Investment
alternative 2:

Purchase
a business that is a major supplier of key raw materials used by the company
in manufacturing its principal product

Present value calculations