CLASS / COURSE: Working Capital Management
Read the questions carefully. In answering the questions of the assignment, make sure you spell out your assumptions, reason your arguments and conclusions, and support the arguments with quantitative and financial analysis where possible. An answer may be considered incomplete without careful reasoning and supporting analysis, or if the answer is not clearly stated.
Examine the financial data for A. O. Smith (in the posted Excel file) and two other firms operating in the same industry, and answer the following questions:
1. (25 points) Estimate WACC for all firms.
2. (25 points) Provide your analysis of capital structure of A. O. Smith. You may use the two comparable firms for comparison. Comment on the firm’s likelihood of distress and the ability to undertake unexpected investments. Comment on the role of debt in producing underinvestment and reducing agency problems in the firm.
3. (25 points) Provide your analysis of the efficiency of working capital management of the firm. Is there room for improvement?
4. (25 points) Provide your analysis of the firm’s ability to cope with unexpected cash flow shortfalls. How may the firm respond? Would you suggest any improvements?
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SUBJECTS / CATEGORIES:
2. Financial Management
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