Case 2: Ford Motor Company’s Value Enhancement Plan
1. Does Ford have too much cash?
For this question, we need some measurement of liquidity to compare the turnover rate and reservation of cash for Ford, GM, Chrysler and compare those measurements in different years to see if Ford have too much liquidity which means too much cash. Quick ratio is liquidity measurement which is a variant of the current ratio. It focuses on quick assets, which are those assets likely to be converted to cash within a relatively short period of time. Quick ratio= (cash+ marketable securities+ accounts receivables)/current liabilities For this question we use quick ratio as our measurement for the solvency ability to know the solvency condition in the industry. In Attach1, we see that in 1999 Ford has quick ratio of 0.13 which is the highest value among the three. And compared with the previous years, Ford still has relatively high quick ratio. Both horizontally and vertically, Ford has relatively high quick ratio, leading to our point that Ford does have too much cash. On the other hand, Ford seems to have a good amount of money in reserve, comparing its cash reserve with GM’s and DaimlerChrysler’s cash and equivalents. In year 1999, Ford had $25,173 of cash and equivalents while GM had $12,140 and DaimlerChrysler $9,163. 2. How does the VEP work?
The VEP include there options for different kinds of shareholders: 1, Shareholders who prefer cash can get one new Ford share for one old share plus $20 per share in cash. 2, Shareholders who prefer more shares in the company can get one new share plus Ford common stocks worth $20 for one old share. 3, Those passive investors who want to keep certain percentage interest in the company also can get one new share for one old share, but they also can choose the combination worth $20 of common stock shares and cash. 4, As part of the VEP, Ford would also distribute its ownership of Visteon to shareholders on a pro rata basis. Market...
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