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P. Ltd. is currently considering undertaking the acquisition of one of. or. possibly both of two alternative companies [E Ltd and C Ltd} to further
P. Ltd. is currently considering undertaking the acquisition of one of. or. possibly both of two alternative companies [E Ltd and C Ltd} to further broaden its service offerings. You. the company's financial controller, are given the following information. A Ltd. Sales $2.5 "v'aria ble costs Eil of sales Fixed costs $65D.D Invested capital $1.?5 lf Pt Ltd. acquires E Ltd.. it would expect to increase its prot by 20% and would require an additional capital investment of $250.00. If A Ltd. acquires E Ltd.. it would expect to increase its prot by 25% and would require an additional capital investment of $650.60D. A Ltd has a minimum required rate of return of 11%. You are required to provide advice on the investment choices based on the following assumptions {word limit: max 4G lines]. 1. Assuming that P. Ltd has a strong focus on using Return on Investment [RBI] to measure management's performance and there are sufficient resources to invest in both alternatives. you are required to calculate Hills of Pt Ltd. both before and after the acquisition of the respective investment alternatives. You are required to advise if A should acquire E or C or both. 2. Assuming that P. Ltd has a strong focus on using Residual Income {RI} to measure management's performance and there are sufcient resources to invest in both alternatives. you are required to calculate Rls of A Ltd. both before and after the acquisition of the respective investment alternatives. You are required to advise if A should acquire E5 or C or both. 3. ICompare your recommendations based on ROI and RI above and explain if ROI or RI should be used in business acquisition decisions from a value maximization perspective
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