Grammar Check

Memo

To: The Board of Directors

From: Financial Analyst

Date: April 24, 2020

Re: Investment Recommendation for Essential Utilities Inc.

According to pro forma analysis of Maricopa and San Francisco. I recommend we can acquiring public water systems in San Francisco.

The Changes in Poverty Rate and Yearly Inflation rate does not affect the result of acquisition Cost and NPV. They are the same. We can ignore the changes.

For Maintenance costs percentage, with the increase in the percentage, we can find the acquisition cost and NPV both decrease in Maricopa and San Francisco. And when the rate for Maricopa and San Francisco is 20% and 25%, their acquisition cost is about 1.8 billion. However, San Francisco's NPV is 310,868,945 which is 1.3 times of Maricopa.

The same thing happened in the change of Water rate, with the increase in the percentage, the acquisition cost, and NPV both increase in Maricopa and San Francisco. Also, when the rate for Maricopa and San Francisco is -10% and 10%, their acquisition cost is about 2.5 billion. San Francisco's NPV is 437,577,258 which is 1.3 times of Maricopa.

The last part is the average change of water assumption, the acquisition cost and NPV both increase in Maricopa and San Francisco with the rate increase. But when the rate above 10 percent, the acquisition cost in San Francisco begins to lower than in the Maricopa accompany the higher NPV

Combined with the above analysis, I set a different rate to make acquisition cost is almost the same. The NPV of San Francisco exceeds the Maricopa by 110 million.

	Maricopa	San Francisco
Average change in water consumption	5%	10%
Change in Water Rates	10%	10%
Change in Poverty Rate	10%	10%
Maintenance costs as % of revenue	10%	10%
Yearly Inflation rate	2.5%	2.5%
Acquisition cost	$2,939,164,849	$2,900,307,571
NPV	($382,091,430)	($493,052,287)