Eddison Electronic Company (EEC) provides electricity to several states in the United States. He has been employed as a cost accountant in this organization. The Operations department is thinking of making a capital investment this current year. Prepare a memo to the EEC Vice President of Accounting that answers the following questions based on the following criteria:

• EEC expects to save $500,000 per year for the next 10 years by purchasing from the supplier.
• EEC's cost of capital is 14%.
• EEC thinks it can buy the supplier for $2 million.

In your memo to the Vice President of Accounting, answer the following questions:

• What are the advantages and disadvantages of each investment method (NPV, IRR or payback period)?
• Which of the methods (VPN, IRR, or payback period) should EEC use and why?
• Would your answer be the same if EEC's cost of capital were 25%? Why or why not?
• Would your answer be the same if EEC did not save $500,000 per year as expected?
• What would be the minimum amount of savings that would make this investment attractive to EEC?
• Based on your calculations, should EEC acquire the supplier? Why or why not?