Westcott-Smith is a privately held investment management company. Two other investment counseling companies, which want to be

Question:

Westcott-Smith is a privately held investment management company. Two other investment counseling companies, which want to be acquired, have contacted Westcott-Smith about purchasing their business. Company A's price is £2 million. Company B's price is £3 million. After analysis, Westcott-Smith estimates that Company A's profitability is consistent with a of £300,000 a year. Company B's prospects are consistent with a of £435,000 a year. Westcott-Smith has a budget that limits acquisitions to a maximum purchase cost of £4 million. Its opportunity relative to undertaking either project is 12 percent.
A. Determine which company or companies (if any) Westcott-Smith should purchase according to the NPV rule.
B. Determine which company or companies (if any) Westcott-Smith should purchase according to the IRR rule.
C. State which company or companies (if any) Westcott-Smith should purchase. Justify your answer.
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