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7/10/2018 2:08:35 PM
 
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Section 23: OPA Elections Subject: Northstar Software Decision Msg# 1019743
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Ev,
I just picked the CD rate because it was handy, no more thought than that. However, your assessment of "foregone investment income" is the basic principle, and current rates are all so low that it doesn't matter very much which low rate one chooses. Thanks for your review of my notes! Len |
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For reference, the above message is a reply to a message where: Len: thank you very much for the analysis. Very glad to see the EAC is being used to evaluate the financial option. If you want to send the spreadsheet that’s fine (eem248@nyu.edu) but not necessary if the below formula, or its equivalent, was used for the calculations. EAC = NPV/A t, r where A= the present value of an annuity factor I cannot speak to the operating efficiencies of the various alternatives since that is beyond my ken however, financially speaking the Northstar proposal, given the assumptions presented, would be the better choice than maintaining the steady-state scenario. Given the cost assumptions have already been vetted by Messrs. Viola and Phillips there is no legitimate reason to question the assumptions. Just one observation, curious why the CD rate was chosen as the discount rate? Was it because the assumption was this is the amount that would be forgone in investment income, since OP does not finance their capital expenditures? Not a big deal since any increase in the discount factor would have an inverse effect on the NPV. Once again, thank you……I do appreciate your professional reply. |
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