Photoequip Ltd. manufactures camera tripods and other photographic equipment. It is considering expanding into the manufacture and sale of smartphone accessories such as Selfie Sticks and Gimbles. The company believes its existing products can be easily repurposed to address the needs of the targeted new customer segment. After some consideration on the best way to proceed, the board decided that the preferred option for the expansion is to acquire a business that already operates in the target market. Following lengthy investigation, the board have identified Apple-Ready Products as a potential acquisition target and you have been instructed to carry out a financial analysis of the company and prepare a report for consideration by the board. The target company’s financial year end is 31st December each year and you have been given the financial statements for the years 2017, 2018 and 2019. You have also been given the management accounts that disclose the actual performance to June 2020 and forecast performance to December 2020. The company expects a minimum return of 12% on any investment it undertakes. It also estimates that because of price increases arising from the additional costs of doing business due to COVID-19, headline inflation is expected to be 1% between now and 2024. The Investment in the targeted company is expected to be €130m and the following cash inflows are anticipated over the next five years:• 2020. €35m• 2021, €45m• 2022, €55m• 2023, €35m• 2024, €25m
Required:Prepare a report to the board of directors of Photoequip Ltd. that 1.Analyses and comments on the results of the target company from FY 2017 to FY 2020
2.Based on the forecast cash flows provided, prepare an investment appraisal using discounted cashflow and payback models
3.Recommends an appropriate budgeting technique to forecast the first year of operations for theacquired company with a justification for your recommendation
4.Explains why the forecast for FY 2020 based on management accounts might differ from thestatutory accounts
5.Provides your opinion as to the value of the investment6.Include any other elements in your Report that you feel may be Relevant to the decision
