Ford Motor Company

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Ford Motor Company’s Value Enhancement

1. Does Ford have too much cash?

The amount of cash that Ford is carrying on its balance sheet is too much considering that additional money not used for the advancement of the company belongs to the owners of the firm, the shareholders. Having too much cash on its balance sheet will be a disincentive to Ford’s employees who consequently will feel not feel an urgency to perform and add value to the company. Notwithstanding the fact that the company is always on the lookout for acquisition targets even after already purchasing Jaguar Cars, Volvo Cars, and Land Rover in the past ten years, it is imperative that the company does not engage in such activities for the sole purpose of “empire
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The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

The second method to distribute extra cash is through a share repurchase. Share repurchase means a company buys its shares back from the market or from those shareholders who are willing to tender such shares. The buyback methodology is used primarily when companies such as Ford believe that their share price is undervalued. Buying back its stock will help Ford to increase its share price by promoting greater interest in its stock. However, we cannot effectively increase company’s liquidity through a conventional share repurchase. And also for traditional stock buyback, it usually will take years of time to executive. In Ford case, stock buyback option will put Ford’s family’s voting power in the company at risk.

4. What a problem is the VEP plan designed to solve?

Ford’s main reason for designing the VEP was that it believed the company’s shares were undervalued. Ford believed that having its shares undervalued limited its ability to attract, retain, and incentivize employees. So Ford thought its recapitalization plan

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