Toyota Recall

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Financing the Toyota Recall. INTRODUCTION In May of 2006, The Toyota Motor Corporation initiated a recall of nearly one million vehicles around the world to replace faulty parts that could cause drivers to lose control of the steering wheel. The recall affected vehicles across 10 models, including the popular Prius. The intermediate shafts and sliding yokes in the recalled cars lacked the necessary strength and could distort or crack under strong pressure, causing drivers to lose control of the steering wheel, according to Toyota (ConsumerAffairs.Com). Owners of these vehicles were allowed to have these defects repaired at the cost of Toyota and required approximately on hour to complete (News.com.au). BODY Dealing with any…show more content…
The can utilize debt or equity financing. If they choose debt financing, they will need to generate capitol for the recall by borrowing the funds. These funds will likely be obtained from a bank or the owner. It is important to note they could seek help from the government given the size of the recall amount or even the general public via bond but these would be unlikely scenarios given there current cash position. Essentially, debt financing offers Toyota loan opportunities to be considered a temporary investment with a stated return to the lenders. While the term may be long or short, and potentially rolled over, it is important to note this avenue would prove less costly then equity financing. Given the history and habit, if you will, of Toyota 's recall history, a short term loan rolled over as necessary would be realistic. General capitol for the recall can be raised by providing ownership of the company through equity financing. The advantage of this is essentially, the financing is forever, unless of course Toyota chose to buy back the stock. The greatest flexible advantage to Toyota with equity financing is of course the payback period is endless. Some disadvantages to equity funding for Toyota is the higher cost versus debt financing and the clear fact they cannot determine the return. The capitol appreciation of the stock and dividends, if paid, cannot be guaranteed, thus higher risk is a factor worthy of careful consideration. Although

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