Which costs would be utilized in deciding to purchase the asset?

Which costs would be utilized in deciding to purchase the asset? Are future
costs relevant in the decision-making process? Please justify and support your position.
EEC needs a thorough analysis of the financial information that pertains to the
supplier. Financial analysis is important since it will help evaluate the viability of the
financial decision to acquire the asset (Hitt, Harrison & Ireland, 2001). Through financial
analysis, the firm will have a unique opportunity to evaluate the business prospects and
relevant financial information about the supplier. Financial statements such as the cash flow
statement, the statement of financial position, and the income statement will help in the
analysis of financial information that relates to the supplier. It is also important to analyze
whether acquiring the supplier will be fit into the overall strategic plan of EEC (Hitt, Harrison
& Ireland, 2001). An analysis of economic trends as well as EEC’s short-term and long-term
goals will be useful in analyzing whether or not the idea of acquisition is viable. EEC’s
budget has to be compared against the current projects that it is currently undertaking. EEC’s
financial data will therefore be crucial in analyzing whether the company can afford to go on
with the acquisition.
Future costs are relevant to the decision-making process. Future costs affect the
profitability of an asset (Hitt, Harrison & Ireland, 2001). While sunk costs are costs that have
already been incurred, future costs play an important since they have an impact on the
feasibility of an asset. All relevant costs need to be considered when making the decision.
List and discuss the pros and/or cons associated with this potential acquisition.
One major advantage of the potential acquisition is the fact that EEC will expand. The
expansion will come with various advantages, including creating economies of scale (Jansen,
2008). The company will benefit from an increase in production while ensuring that

production costs are minimized. The productivity levels will also be boosted to a great extent.
The acquisition will also help in ensuring that EEC adopts an evolving business model. EEC
needs to continually evolve and ensure that it remains profitable in spite of the challenges that
it may face. Acquisition of suppliers will also be in line with the goal of saving time (Jansen,
2008). EEC will potentially save on time that is spent acquiring raw materials from the
supplier. The production process will therefore be more efficient, and this will help ensure
that the company competes favorably in the marketplace.
There are several disadvantages that could be associated with the potential
acquisition. One potential disadvantage is an increase in the administrative burden. The
company will need to increase its managerial scope to cater to the new acquisition (Jansen,
2008). The company may need to operate in a new location, and this means that it has to hire
people who will manage the new supplier. Another disadvantage relates to organizational
culture. The supplier could have a different culture from EEC (Jansen, 2008). The implication
is that the values might conflict with EEC values. It may be difficult to harmonize
organizational culture and values. In addition, the acquisition may create financial problems.
The company may have to incur additional costs relating to the acquisition, and this may
affect its profitability.

References

Jansen, S. A. (2008). Mergers & acquisitions. Wiesbaden, Germany: Gabler.
Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). Mergers & acquisitions: A guide to
creating value for stakeholders. Oxford University Press.