Ford Motor

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Case problem : Ford Motor Company’s Value Enhancement Plan
Group 4 : Annie , Duong Boi Ngoc , Jussi , Michael

Q1. Does Ford have too much cash? Why did Ford choose to accumulate so much cash? And why is Ford distributing a large amount of cash now?
(1) To check whether Ford has too much cash, we have to calculate the cash ratio. But the data we have is not complete, we cannot find out that ratio. Instead, we calculate the cash turnover ratio to check whether Ford has excess cash. Cash turnover ratio = sales/ average cash, and the following is the ratio from different company | Ford | GM | Chrylser | Sales | 162,558 | 176,558 | 151,035 | Average cash | 25,064 | 17,069 | 15,580 | Cash turnover ratio | 6.5 | 10.3 | 9.6 |
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For example, at a pre-distribution share price of $60 for existing common shares, new Ford shares would be worth $40. Stockholders, thus, would have the choice to receive $20 of cash or half a share of new Ford common.
Q5. As a shareholder, how would you approve the VEP? Would you elect cash or shares?
Approval of VEP depends on how many shares you hold at the moment, are you planning to sell your investments or do you want to take a calculated risk and take greater level of interest on Ford. As a minority shareholder we would approve VEP, as voting rights are very low anyway. As a major shareholder there might be more consideration to be done about the plan.
We can find two different aspects on to elect cash or shares. Firstly, if we would be minority shareholder, we would elect cash option because it is about 40% of the current market value. Also, this would not increase our stake in the company and would keep option open for our outstanding shares to gain value overtime as the company’s stock have been undervalued. Secondly, if there would not be any need for cash and we would like to higher our stake on the company, thus getting more shares. Moreover, if the cash at that moment would not be crucial to our liquidity, getting more shares and betting on market value gains makes sense.
Q6. What should Ford do if cash elections amount to less than $10 billion?
One option for Ford to do is

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