Midwest Fireplaces

We build, it heats, you enjoy!

M E M O R A N D U M
To: Acquisition Analysis Team
From: George Jenkins
Subject: Growth through acquisition
Welcome on board! Our parent company is demanding more profits and we are happy to
have your expertise to work with, as we are out of our comfort zone in terms of picking a
profitable acquisition target.
I would like you to think about some company acquisitions that we are considering in our
geographic region to strengthen our dominance in the Midwest. Our parent company is
having trouble achieving organic growth and we are considering the following three
smaller, but innovative, fireplace companies for acquisition. Our parent company does
not want to stretch management thin, so these are all active in and around our current
active markets.
Please let me know which of three potential acquisitions to take to maximize the value of
the firm over the next three years. The following table shows year-end profits for each
potential acquisition. Our finance department has signaled they expect interest rates to be
stable at 8 percent over the time period. Which company would you recommend to
acquire?
Compan
y
A
B
C

Profits in Year 1

Profits in Year 2

Profits in Year 3

$70,000
$50,000
$30,000

$80,000
$90,000
$100,000

$80,000
$100,000
$110,000