Automobile Financial Analyst Evaluating Acquistions of Smaller Companies

Instructions

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
   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. Any information from a source used must be cited and referenced in APA
format.