Alpha PLC is an entity which has grown in recent years by acquiring established businesses. Alpha PLC is contemplating acquiring Betta Limited and Gamma Limited, both operating in the same industry as Alpha PLC. The management of Alpha PLC has indicated a total acquisition price of N12 million for each company. The following financial statements provide insight into the performance and financial position of both Betta Limited and Gamma Limited as at September 30, 2020:

1. Statement of Profit or Loss (for the year ended September 30, 2020):
   

   	Betta Ltd (N’000)	Gamma Ltd (N’000)
   Revenue	25,000	40,000
   Cost of sales	(19,000)	(32,800)
   Gross profit	6,000	7,200
   Distribution costs	(800)	(1,400)
   Administrative expenses	(450)	(900)
   Finance costs	(250)	(900)
   Profit before tax	4,500	4,000
   Income tax expense	(900)	(1,000)
   Profit for the year	3,600	3,000

2. Statement of Financial Position (as at September 30, 2020):
   

   	Betta Ltd (N’000)	Gamma Ltd (N’000)
   Non-current assets
   Property, plant and equipment
   – Property	–	3,000
   – Owned plant and equipment	4,800	2,000
   – Leased plant and equipment	–	5,300
   Total non-current assets	4,800	10,300
   Current assets
   Cash at bank and in hand	1,600	200
   Trade receivables	1,600	5,100
   Inventories	1,600	3,400
   Total current assets	4,800	8,700
   Total assets	9,600	19,000
   Equity and liabilities
   Ordinary shares (N1.00 each)	1,000	2,000
   Revaluation surplus on property	–	900
   Retained earnings	1,600	2,700
   Total equity	2,600	5,600
   Non-current liabilities
   Finance lease obligation	–	4,200
   5% loan notes (Dec 2026)	5,000	–
   10% loan notes (Dec 2026)	–	5,000
   Total non-current liabilities	5,000	9,200
   Current liabilities
   Trade payables	1,250	2,100
   Finance lease obligation	–	1,000
   Tax payable	750	1,100
   Total current liabilities	2,000	4,200
   Total equity and liabilities	9,600	19,000

3. Additional Ratios Calculated:
   • Gross profit margin: Betta 24.0%, Gamma 18.0%
   • Profit margin (before interest and tax): Betta 19.0%, Gamma 12.3%
   • Return on capital employed (ROCE): Betta 62.5%, Gamma 31.0%
   • Current ratio: Betta 2.4:1, Gamma 2.1:1
   • Acid test ratio: Betta 1.6:1, Gamma 1.26:1
   • Net assets turnover: Betta 3.3 times, Gamma 2.5 times
   • Gearing: Betta 65.8%, Gamma 64.6%

Required:

a. Write a memo to the Director of Alpha PLC advising him on how to make the investment decision considering the performance and financial position of Betta Limited and Gamma Limited for the year ended September 30, 2020. (14 Marks)

b. What other qualitative factors should the management of Alpha PLC take into consideration assuming Gamma Limited is a foreign subsidiary? (6 Marks)