Question: Your company has sales of 100 million and profits of
Your company has sales of $100 million and profits of $10 million. A similar, smaller company with sales of $25 million and profits of $5 million appears to be an attractive merger candidate. You currently buy 50% of the smaller company’s production. The CEO has indicated that this would be a great acquisition because it would increase sales by 25% and profits by 50%. As CFO, what issues do you raise concerning this proposed purchase and the CEO’s analysis.
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