1. Mercury is properiate for AGI as long as AGI could acquire by a price not much higher than Mercury’s true intrinsic value. According to Liedtke’s analysis, this acquisition will almost double AGI’s size, which would give it some competitive advantages in both operating and financing. Additionally, according to table 2 and Ex1, AGI and Mercury have an exactly same operating metrics, including RONA, ROE, and Asset Turnover during the past three years, which also makes Mercury a proper target. Except for Women’s Casual Footwear division, which will be closed in one year after acquisition, the other three of Mercury all demonstrate a prosperous future prediction in margins and growth.

2. As shown in Appendix, Net Income Margin, NWC as % of Revenue, and Depr. as % of PPE projected by Liedtke maintains stable and reasonable, compared with both the industry average and Mercury’s previous performance. Specifically, revenue growth rate will drop by a large degree in 2008 for the reason that AGI plan to shut down the business of Women’s Casual Footwear. It is still reasonable because EBIT margin and other ratios will be stable and close that business will not hurt the business as a whole.

However, the EBIT and EBITDA Margin are recommended to be lower than the projection because Mercury got most of its sales from discount promotions, and it is suggested to keep this strategy, which may lower down the margins.

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1. Projected Cash Flow is shown in appendix. The non-operating income is treated as zero so that EBIT equals to operating income. Also, an PPE schedule is calculated to verify that the CapEx given by Ex.6 is corresponded to the change of PPE and Depr. The account on Ex.7 is titled as Cash Used in Operation, since Mercury will perform as a division of AGI after acquisition, and there is no information on excess cash. However, the effect of