Strategic Management
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I'm writing about the Ford Motor Company. I need help on the following questions.
a. In light of your selected organization's current operations, as well as trends in the national economy and the organization's industry, what changes, if any, would you recommend in your selected organization's approach towards determining its cost of capital? How would you adjust the discount rate for riskier projects? Why?
b. Evaluate long-term financing instruments and strategies for your selected organization.
c. Devise the optimal capital structure for your selected organization in light of current, business, economic, and industry trends.
d. A summarization of the above findings and also include a thorough examination of the factors that exposed your selected organization to various forms of risks such as business and financial, as well as techniques that were used to successfully mitigate them.
e. Recommend additional risk mitigation techniques based on your analysis of the organization.
Please properly cite where you obtained the financial information, etc.
(at least 1100 word).
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Solution Summary
The response addresses the queries posted in 1741 words with reference
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The response addresses the queries posted in 1741 words with references.
//Everywhere changes are bound to occur, and they follow a specific trend from upwards to downwards and vice-versa and one has to adjust itself with the changes to be informative. The current US economy is also experiencing an unfavorable trend. Its effects can easily be seen on the overall automotive industry of the country. Thus, before answering such a question, it is very essential that a short introduction should be provided wherein, we can introduce the topic like this: //
Current economic trends in US and automotive industry
The US economy has still not recovered from the recession, which began in the 2007.The economy has started getting up from the past levels with the help of different measures and large government spending, but still it is facing the unfavorable recessionary phase. As its real GDP rate has decreased to 6.4% in the first quarter of 2009 and 1% in the second quarter of 2009 (Gross domestic product: second quarter 2009 second estimate. Corporate profits: second quarter 2009 preliminary estimate, 2009).The automotive industry of the country has also been under the period of a downfall as the expected downfall in the September sales is around 19% approx. against the sales of the corresponding month of 2008.Companies like Chrysler, General Motors all have been hit by recession and bankruptcy prevailing in the automotive industry.
Ford Motors approach towards determining the Cost of Capital.
Ford motors also faced a terrible time along with its peers. The company has raised a lot of debts, in order to come out of the situation of downturn. But at the same time, it has accumulated debts in its balance sheet to make the cash inflow in the company. The final balance sheet of 2008 is showing a debt of around $154,196 million (Ford Motor Company / 2008 Annual Report, 2009). It is expected around $25.8 billion dollars at the current levels and further expected to go up to $36 billion by the 2011 (Mounting debt a burden for Ford: But successes with capital, stock price, market share, union are strengths, 2009). Ford is expecting the profits to go up, but it can't push the company up as it will remain under the pressure of payment of large debts.
The overall cost of capital is determined by considering all the sources of long term financing that are used by the company. As the conditions are prevailing, it will be better for the organization to opt for raising capital by issuing the shares in the capital market as this will prove better for the organization. The company has to pay a lot in interest that surely draws away its cash balances. Company's cost of capital is determined through the large debts as opposed to shares. The company's cost of capital will surely be less by using more debt, but this approach is not suitable, because it will accumulate a large amount of debts. The company should consider more stocks then surely it will increase its cost of capital, but it can give a broader view that will ...
Education
- MBA (IP), International Center for Internationa Business
- BBA, University of Rajasthan
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