BBA3301 Columbia Unit 3 Financial Analyst at an Automobile Corporation HW


Question Description

I’m trying to study for my Economics course and I need some help to understand this question.

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
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
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
APA format

Book: Introduction to Finance Markets Investments and Financial Management 16th Edition

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Final Answer


OUTLINE: Scenario Analysis in Finance
The attached paper entails the following components:

Evaluating a manufacturing company before making an acquisition is a necessary
process. The companies having strong financial performance based on the parameters
highlighted will be selected.

Credit rate/score is an evaluation of creditworthiness, used for businesses or individual
consumers. It helps lenders to anticipate how likely one is to repay your loan on time and
assess the risk that one won't be able to repay the debt as agreed (Boshkoska, 2017).

Loan approval is easier to obtain for short term loans. The short term lenders may lack
stringent background checks compared to long term loans. Since the acquisition is sudden
and more tranquil approval is required, the company should opt for the short term loan
(Kucewicz, 2016).

The inflation will have an impact on the investors and the acquiring company since it
chips away from the investment returns and real savings

In general, the yield curve and the term structure of interest rate are the same and
sometimes used interchangeably. This is because the graphs of term structure interest are
plotted on the same plots with different yields being offered by bonds having different

The technological impact on the non-banking sector will exert upward pressure on the
interest rates. However, fancy technology such as those in the banking sector will exert
downward pressure on interest rates. If a new process is developed that allowed
automobiles to run off oil-based lemonade, the demand for oil will reduce, and the
interest rate will increase

Ratios are important when making various comparisons between various aspects of a
company to assess its performance or how the company compares to other companies in
the industry or region. The ratios will reveal whether the company h...

EngDuke1993 (14066)
Boston College

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