Hi Tutors

I need help with writing a Memo based on the below needs and the calculations I have done for various stakeholders scenario. I need help with Part B and your help is highly appreciated. thank you

The company has been growing steadily over the past 5 years, and the nancials and future prospects look good. Your CED has asked you to run the numbers. After doing some digging into the business, you have gathered information on the following: a The estimated purchase price for the equipment required to move the operation in-house would be $Q.. Additional net Working capital to sUpport production {in the form of cash used in lnyentory, AR net of AF] would be needed In the amount of $40.0 per year starting in year D and through all years of the project to stport production as raw materials will be required in year o and all years to run the new equipment and prrJdUce components to replace those purchased from the yendor.. The current spending on this component [i.e. annual spend pool) is $1.50. The estimated cash flow sayings of bringing the process in-house is 20% or annual savings of $309,000. This includes the additional labor and overhead costs required. Finally, the equipment required is anticipated to have a somewhat short useful life. as a new Waveof technology is on the horizon. Therefore, it is anticipated that the equipment will be sold after the end of the protect [the last year of generated cash ow} for $5,. {l.e. the terminal lllp'alue). Albert. your colleague from Accounting. recommends using the base assumptions above: 5-year project life. flat annual savings. and 12% discount rate. Albert does not feel the equipment will have any terminal value due to advancements in technology. Batty from Sales is convinced that this capability would create a new revenue stream that could signicantly offset operating expenses. She recommends savings that grow each yean 5-year project life. 12% discount rate. and a 1't-t: annual savings growth in years 2 through 5. In other words. instead of assuming savings stay at. assume that they will grow by t'iit} in year 2. and then grow another 1% over year 2 in year 3. and so on. Betty feels that the stated terminal value of $5. is reasonable and used it in his calculations. Cassia from Engineering believes we use a higher Discount Rate because of the risk of this type of project. As such. she is recommending a 5-year project life and flat annual savings. Cassie suggests that even though the equipment is brand new. the updated production process could have a negative impact on other parts of the overall manufacturing costs. She argues that. while it is difcult to quantify the potential negative impacts. to account for the Iisk. a 15% discount rate should be used. Being an engineer. Cassie feels that the stated terminal value is low based on her expelience. and is recommending a $?5.D terminal value. David. the Product Manager. is convinced the new capability will allow better control of quality and on-time delivery. and that it will last longer than 5 yeam. He recommends using a 1' Year Equipment Life {which means a ?-year project and that savings will continue for ? years]. at annual savings. and 12% discount rate. In other words. assume that the machine will last 2 more yeam and deliver 2 more years of savings. David also feels the equipment will have an estimated terminal value of $25.D{l at the end of its 'i"- year useful life as it will be utilized longer thus having less value at the end of the project and savings. Ellen. the head of Operations. is concerned that instead of stabilizing the supply chain. it will justadd another process to be managed. and will distract from the core competencies the company currently has. She feels the company should focus on improving communication and supply chain management with its current vendor. and she feels condent he can negotiate a discount of 2% off of the annual outsourcing cost of $1 .5. if she lets it be known they are considering taking over this step of the process. As there is little risk associated with Ellen's proposal due to no upfront capital requirements. a lower risk-free discount rate of ?% would be appropriate. Ellen feels that any price reductions from the current vendor will last for ve years. (NOTE: because there is no "investment". the Payback and lFtFt metrics are not meaningful. Simply provide the NW of the Savings cash ows}. Part B: Recommendations After completing the calculations for all scenarios, create a brief memo to the CEO outlining your committee's recommendations. You may organize the memo as you see fit, but it must include the following: . A clear opening statement of your recommendation for or against the project. A brief synopsis of the processes and factors that led to your recommendations. What information did you gather, and how did you get it? o From whom did you seek input, and why? . A summary of the strategic benefits and risks in pursuing (or not pursuing) this project, including: O Highlights of the main data points that support your position O Acknowledgement of the data points that oppose your argument Identification of open/unresolved items An identification of the scenario that, from a purely financial perspective, represents the most accurate estimate of the anticipated results and your rationale as to why. . An identification of non-financial elements that need to be considered for the recommended scenario. Any assumptions in project economics can have a significant impact on the result. Identify 3 financial elements/assumptions in your analysis that would make this project financially unattractive. Be as transparent and candid with your BOD as possible. What would have to be true for this to be a bad investment? . A summary restating your recommendation and key action items