Diversified Industries is a large conglomerate and is continually in the market for new

acquisitions. The company has grown rapidly over the last $10$ years through buyouts of

medium$-$sized companies. Diversified does not limit itself to companies in any one industry

but looks for firms with a sound financial base, growth potential, and the ability to stand on

their own financially.

The president of Diversified recently told a meeting of the company$$s officers: $$I want to

impress two points on all of you. First, we are not in the business of looking for bargains.

Diversified has achieved success in the past by acquiring companies with the ability to be a

permanent member of the corporate family. We don$$t want companies that may appear to be

a bargain on paper but can$$t survive in the long run. Second, a new member of our family

must be able to come in and make it on its own $$ the parent is not organized to be a funding

agency for struggling subsidiaries.$$

Ron Dixon is the vice president of acquisitions for Diversified, a position he has held for five

years. He is responsible for making recommendations to the board of directors on potential

acquisitions. Because you are one of his assistants, he recently brought you a set of financials

for a manufacturer, Heavy Duty Tractors. Dixon believes that Heavy Duty is a $$can$$t miss$$

opportunity for Diversified and asks you to confirm his hunch by performing a basic

financial statement analysis on the company. The most recent income statement and

comparative balance sheets for the company follow. What do you recommend?

prepare a cash flow statement to help with your recommendations. The

following data is also available in the accompanying spreadsheet.