Why Does Ford Choose To Accumulate So Much Cash?

2. Do you favor the proposed acquisition of UCP? What are the primary sources of value in such a transaction? Is the proposed price reasonable?

2) What are Linear’s financing needs? Should Linear return cash to its shareholders? What are the tax consequences of keeping cash inside the firm?

or a combination of cash and new share. Based on the following analysis, Ford should go

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

The 1920 's were a time where North America became modernized. Whether it was the music, the culture or the growth in technology, this time era is known to most people as the point where America advanced itself to become a world renowned country. An advancement that will be focused on is the Ford Model T. During this time owning a car was a symbol of wealth. Henry Ford, the creator of the Model T, made a system that revolutionized the automobile industry as we know it today. Henry Ford made it possible for people with an average income to own a motor vehicle by creating the assembly line and the theory of mass production. "The horse, which had been the chief means of land transportation for 3,500 years, had given way to the automobile, and

11. Managers of POM Corp. wish to maximize the long term share price of the firm. Investors are aware of this. In this situation, if the managers of POM announce an equity issue, investors will conclude that the share price is __A1__. Therefore they will __A2__ the shares at the offered price. Anticipating this condition, the managers would __A3__.

c) What will be the required return on equity (rE) after the change in capital structure from part b?

In April 2000, Ford Motor Co. announced a shareholder Value Enhancement Plan (VEP) to significantly recapitalize the firm's ownership structure. Ford had accumulated $23 billion in cash reserves and under the VEP would return as much as $10 billion of this cash to shareholders. In exchange for each share currently held, the plan would give stockholders one new share plus the choice of receiving $20 in either cash or additional new Ford common shares. Shareholders electing to receive cash would be taxed on these distributions at capital gain rates. Among other things, the plan provided a means for the Ford family to obtain liquidity without having to dilute their 40% voting interest (even though they own

3. What restructuring option – Icahn’s spin-off proposal or the company’s targeted stock proposal – will create the most value for shareholders? For creditors? For the firm’s other stakeholders?

Ford has had to face various challenges and current goals are to obtain the market share from its competitors and build the vehicles consumers are demanding. By meeting these needs, the company can redefine itself. With consumers trying to decrease their debt and an increasing number of competitors showcasing fuel-efficient vehicles, Ford needs to create affordable high quality and fuel efficient vehicles to remain competitive. An internal analysis of Ford Motor Company will evaluate its resources and capabilities. This analysis can aid in determining Ford’s cost position, competency, and competitiveness in the current marketplace.

Explain what shareholders would receive in exchange for (a) old common shares, (b) old class B shares, and (c) old shares held in the employee saving plan.

Although both of these two methods have the similar function in adjusting the capital structure, VEP has its advantages in terms of less limitation and higher efficiency. According to SEC rules, Ford’s maximum repurchase volume from open market was 2.075 million per day in 2000, which means Ford has to spend at least 103 days to conduct the share repurchases with the total $10 bil-lion cash. The implementation of VEP significantly reduce the time cost in the repurchase process. Moreover, since VEP provided the same deal to all the shareholders, it saved the time and funds spent in the negotiation and premium prices offering.

This is due to the fact that inventory and accounts receivable are left out of the equation. Based on the cash ratio, this company carries a low cash balance. This may be an indication that they are aggressively investing in assets that will provide higher returns. We need to make sure that we have enough cash to meet our obligations, but too much cash reduces the return earned by the company.

4. Are a member of HP’s Investment Committee, would you agree with the proposals to:

5. As a shareholder, how would you approve the VEP? Would you elect cash or stock?