KG is a divisionalised company, based in South Africa, where it is quoted on the stock exchange. KG manufactures and sells small electrical equipment products. South Africa is more highly developed than the neighbouring countries. KG has enjoyed a strong home market and has exported to the neighbouring countries. KG has had a reputation for producing high quality products. Recently, it has come under increasing competitive pressure from new, privately held, companies based in the neighbouring countries. It appears that competitors based in these neighbouring countries have been selling lower quality products than KG and have been undercutting it quite significantly in terms of price. Sales in both KGs home and export markets have been badly affected by the actions of these competitors in the neighbouring countries. KG has looked at a number of possible solutions to this situation and has decided to acquire a manufacturing company in one of the neighbouring countries and move all of its production there, completely closing the manufacturing division in South Africa. This would mean that KG would purchase one of the companies that has recently become a competitor. KG would maintain its present divisionalised structure within its home country South Africa and treat the acquired company as a new division. The Board of Directors recognises the need to carefully select a suitable acquisition target company. The Board also recognises that careful consideration will need to be given to the most suitable approach to performance management once the acquisition has been made. The Board is considering an approach based on either Return On Investment (ROI) or Residual Income (RI).

REQUIRED: (A) Advise the Board on what information would be required to assess the suitability of an acquisition target. (25 Marks)