Background You are the Director of Accounting & Controls for Company XYZ and you

Question

Background You are the Director of Accounting & Controls for Company XYZ and your boss the VP Controller has asked you to review a pending transaction that has two potential targets. Your company is trying to decide which target is a better fit both financially and culturally Below, you will find the facts of the case and the question that needs to be addressed Facts Section I- Financials & Metrics as of 12/31/XX In $000s Target A Target B Sales cos Margin 535,500 485,700 49,800 698,000 489,000 209,000 SG&A; 30,000 S 15,000 EBIT 19,800 194,000 10% 434,000 8 years 30 days Weight Average Cost of Capital Net Present Value - Discounted Cash Flow Payback Period Collection Days Inventory Tumover Working Capital Turnover Cash Accounts Recelvable, net Debt Equity 10% 225,000 10 years 45 days 12 8.5 50,000 S 100,000 $ 10,000 $ 00,000$ 150,000 120.000 50,000 Section II - Due Diligence Findings Financial Control Environment Pending Legal Issues (likelihood > 50%) Environmental Issues HR Involvement & Responsiveness Operational Environment Business Practices & Ethics Excellent Properly Accrued Properly AccruedLack of Documentation Poor Under Accrued Poor Poor Average Excellent verage Question for Discussion Which target would you recommend and why?

Explanation / Answer

Target B will be recommend because the Net Present Value , Payback Period , Debtor Collection days is better than Target A.while financial control is Target A is better than Target B but HR involvement & responsiveness, Operational environment & Business practises & Ethics is better Than target B. The account receivable & cash condition is better than Target A.

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