Overview
Unit III Case Study
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 strongfinancial 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 evaluating companies?
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 basis? Why?
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 rates?
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. Adhere to APA Style when creating citations and references for this assignment.
Unit IV Journal
Assume that your aunt recently gifted you $12,000. You are both excited and worried about what to do with the money. You evaluated your options and came up with five possible uses:
pay off credit card debt, set aside money for a major investment, such as a car or house,
invest the money in a retirement account, FIN 3301, Financial Management 2 use the money for career training/education, or
donate funds to a charitable organization that serves the needy within the community.
Which option would you choose? Go through each option and explain how the time value of money concept affects each option. How does the time value of money concept play a part in your final decision about the use of the $12,000 gift?
Explain.
Your journal entry must be at least 200 words in length. No references or citations are necessary.