Easton Case

Overview

The case is Eaton Corporation: Portfolio Transformation and the cost of Capital

Read the case and conduct a thorough Financial Analysis

Utilizing only the material provided in the case, complete the following questions with detailed and well

supported answers using the data in the case and your financial analysis.

Why is Arnold considering the sale of Eaton’s Hydraulics businesses? Does it make sense

strategically and financially to sell the businesses?

Review Eaton’s financial forecast in Exhibit 5. Critique the assumptions underlying the forecast.

Are the assumptions realistic? Why or why not?

Use Exhibit 5 to test the sensitivity of the businesses value to changes in the assumed model

parameters. Which assumptions are the most important drivers of value in the model?

What factors affect Eaton’s WACC? Use the data provided in the case to estimate an appropriate

WACC for Eaton Corp..

Review the firm comp data in Exhibits 8A and 8B. What firms are most similar to Eaton’s hydraulic

business? Based on your analysis determine an appropriate WACC for Eaton’s hydraulic

business? How does this compare to the corporate estimate provided above?

Should Arnold agree to sell the Hydraulics business to Danfoss for $3.3 billion? If not, what should

he do?fol