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 $000's Target A Target B Sales $ 535,500 $ 698,000 COS $ 485,700 $ 489,000 Margin $ 49,800 $ 209,000 SG&A $ 30,000 $ 15,000 EBIT $ 19,800 $ 194,000 Weight Average Cost of Capital 10% 10% Net Present Value - Discounted Cash Flow $ 225,000 $ 434,000 Payback Period 10 years 8 years Collection Days 45 days 30 days Inventory Turnover 12 4 Working Capital Turnover 8.5 5 Cash $ 50,000 $ 150,000 Accounts Receivable, net $ 100,000 $ 120,000 Debt $ 10,000 $ 100,000 Equity $ 100,000 $ 50,000 Section II - Due Diligence Findings Financial Control Environment Excellent Poor Pending Legal Issues (likelihood >50%) Properly Accrued Under Accrued Environmental Issues Properly Accrued Lack of Documentation HR Involvement & Responsiveness Poor Average Operational Environment Poor Excellent Business Practices & Ethics Poor Average Question for Discussion Which target would you recommend and why?