Read the scenario below, and answer the following questions.
You work as a financial analyst at a large automobile corporation that
occasionally makes acquisitions of smaller companies that specialize in the
production and assembly of small component parts. In order to achieve
vertical integration of its newest sports sedan model, the company is
evaluating a few manufacturing companies that have experienced strong
financial performance in the past few years. These companies would make
excellent acquisitions due to the nature and quality of the product and the
anticipated ease of transition. You have been tasked to evaluate these
companies from a financial perspective and choose one. To do this, you need
to brush up on a few concepts by addressing the following topics:
1. Describe what a crediting rate/score is. Should this be a factor in
2. The firm will need to raise funds immediately for the acquisition,
and debt will be used. Should the firm borrow on a long-term or short-term
3. Explain the effect, if any, inflation rates will have on the
purchase? How significant is this factor?
4. Define the relationship between yield curves and the term structure
of interest rates.
5. Explain what would happen to interest rates if a new process was
developed that allowed automobiles to run off oil that was formulated based
on lemonade? The technology used to convert this liquid to gas would be
pricey but well worth it. What impact would this technology have on interest
6. Discuss what ratios should be used to assess the financial health of
the potential acquisition?
Your completed case study must be at least two pages in length, and you must
use at least your textbook as a reference. Other references may be used as
needed. Any information from a source used must be cited and referenced in
Book: Introduction to Finance Markets Investments and Financial Management 16th Edition