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    Mr Malfoy and the acquisition project analysis

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    You have been working on an acquisition project with a few other team members that the senior management has assigned you. You are asked to present to the board of directors ("BOD") your findings and recommendations. After some hair pulling and stressful evenings with your team mates to get the project done on time, you've put together all your findings including the following facts: Future cash flows do not look good. NPV is significantly negative, IRR is below your company's cost of capital even after adjusting for risk. You have double checked your work and received confirmation from other reliable sources that you are correct--that indeed, this would be a bad investment.

    But you also know that one of the BOD members, Mr. Malfoy who also happens to be very smart and respected, is a good buddy of the owner of the company that is being considered for acquisition, and this bothers you as you methodically present to the board that they should not go forward with the deal. While your team nods their head in agreement, you conclude your presentation with the statement that you believe it is just too expensive, and will not create shareholder value to the company.

    After your presentation, Mr. Malfoy states with a yawn, "There are lies; there are damn lies; and there are financial statistics. You've just presented a lot of financial statistics. I say let's do the deal. Let's get this meeting over with. Drinks are on me!"

    How would you respond to the board of directors in this scenario after Mr. Malfoy's statement?

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    Solution Preview

    In response to Mr. Malfoy's statement, I would say this to him and the BOD:

    Mr. Malfoy, at the direction of senior management, we normally conduct a full analysis of any potential acquisition project including a review of the all facts available to us. My team has worked diligently using a ...

    Solution Summary

    The solution presents arguments to be given verbally to the board of directors in defense of the project analysis.