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