The company selection that the research will be based on is The Ford Motor Company. The Ford Motor Company is an American multi-national corporation and the world’s fourth largest automaker based on worldwide vehicle sales (wikipedia. org). Based in Dearborn, Michigan, a suburb of Detroit, the automaker was founded by Henry Ford, and incorporated in June 16, 1903. Ford was started in a converted factory in 1903 with $28,000 in cash from twelve investors. Henry Ford was 40 years old when he founded the Ford Motor Company, which would go on to become one of the largest and most profitable companies in the world.
The Ford Company also was one of the few to survive the Great Depression. The largest family-controlled company in the world, the Ford Motor Company has been in continuous family control for over 100 years (wikipedia. org). Ford Motor Company designs, develops, manufactures, and services cars and trucks worldwide. It operates in two sectors, Automotive and Financial Services. The Automotive sector sells vehicles under Ford, Mercury, Lincoln, and Volvo brand names. This sector markets cars, trucks, and parts through retail dealers in North America, and through distributors and dealers outside of North America (businessweek.
com). The Financial Services sector offers various automotive financing products to and through automotive dealers. It offers retail financing, which includes purchasing retail installment sale contracts and retail lease contracts from dealers, and financing to commercial customers to purchase or lease vehicle fleets; wholesale financing that comprises making loans to dealers to finance the purchase of vehicle inventory; and other financing, which consists of making loans to dealers for working capital, improvements to dealership facilities, and to purchase or finance dealership real estate (businessweek. com).
The Ford Company NYSE = F and is currently trading at $11. 56 per share. The total net income for the year of 2009 was a total of $2. 9 billion dollars. Problem Statement This proposal is directed to the shareholder wealth of Ford Motor Company. In order to provide high quality parts at a minimal cost, of Ford Motor Company needs equipment procedures that are safe, efficient, and accurate. In addition, the procedures should not be overly costly for the company. Right now, of Ford Motor Company main process equipment tooling is designed out of carbon and aluminum fixtures. The fixtures fail to make quality parts 20% of the time.
When the fixtures fail, Ford Motor Company must replace the damaged parts monetarily. While the process equipment tooling fixtures have worked well up to this point, these fixtures have become worn and sometimes dangerous for the production parts. If Ford Motor Company continues to do use these fixtures, they will not only be wasting time and money, which jeopardizes their overall efficiency and earning potential and will lead customers to choosing another automotive suppliers with more quality based product/s. A new set of process equipment tooling fixtures may surpass the old equipment in safety, efficiency, and productivity.
I propose to research the feasibility of establishing new tooling. We will investigate the accuracy, efficiency, and safety of the new tooling as well as implementation issues, proposing to drop the fall-out rate to 5 % with these improvements. If this is not corrected of Ford Motor Company will lose its valued customers that insure the longevity of it survival. Ford Motor Company achieved a pre-tax operating profit, excluding special items, of $472 million in 2009, which was a $7. 3 billion improvement over 2008. ONE Ford helped us achieve profitability and grow our business despite a global recession.
In every part of the world we are providing customers with great products, building a stronger business and contributing to a better world. We initiate coverage on Ford Motor Company with a SELL based on a weighted average target price of US$4. 74. Our DCF valuation is based on a WACC of 7. 40% and perpetual growth rate of 3. 0% As of now we have the budget in our equipment maintenance program that has been holding a balance of 2. 5 million dollars per year. If we transfer this money into the assets of our tooling on the equipment, our ROI will show in less than 6 months. As with any company in this economic turmoil there is risk.
However, with the changing world and customer demand changes, risk are not to be over looked but, used to our benefit to improve and lead the way to profitable growth. Below is listed the cost investment for our tooling redesign: Detailed information on each Machine investment alternative| Parameter| Machine A| Machine B| Invoice Price| $ 100,000| $50,000| Shipping/Installation| $ 20,000| $ 10,000| MACRS Class| 3| 3| Project Life| 5-years| 5-years| Salvage Value| $ 50,000| $ 0| Incremental Revenues (EBITD; before taxes and depreciation. Note, these are not cash flows so you must convert. )| EBITD| EBITD| Year – 1| $125,000| $135,000|
Year – 2| $125,000| $135,000| Year – 3| $125,000| $135,000| Year – 4| $125,000| $110,000| Year – 5| $125,000| $110,000| Quarterly Cash Flow Statement Period End Date| 06/30/2010| 03/31/2010| 12/31/2009| 09/30/2009| 06/30/2009| Period Length| 6 Months| 3 Months| 12 Months| 9 Months| 6 Months| Stmt Source| 8-K| 10-Q| 8-K| 10-Q| 10-Q| Stmt Source Date| 07/23/2010| 05/07/2010| 05/07/2010| 11/06/2009| 08/05/2009| Stmt Update Type| Updated| Updated| Updated| Updated| Updated| | | | | | | Net Income/Starting Line| 0. 0| 0. 0| 0. 0| 0. 0| 0. 0| Depreciation/Depletion| 0. 0| 0. 0| 0. 0| 0. 0| 0. 0| Amortization| 0. 0| 0. 0| 0.
0| 0. 0| 0. 0| Non-Cash Items| 0. 0| 0. 0| -630. 0| -630. 0| -630. 0| Other Non-Cash Items| 0. 0| 0. 0| -630. 0| -630. 0| -630. 0| | Changes in Working Capital| 2,900. 0| 2,683. 0| 15,477. 0| 15,630. 0| 9,779. 0| Other Operating Cash Flow| 2,900. 0| 2,683. 0| 15,477. 0| 15,630. 0| 9,779. 0| | Cash from Operating Activities| 0. 0| 2,683. 0| 14,847. 0| 15,000. 0| 9,149. 0| | | | | | | Capital Expenditures| 0. 0| -1,068. 0| -4,059. 0| -3,391. 0| -2,388. 0| Purchase of Fixed Assets| 0. 0| -1,068. 0| -4,059. 0| -3,391. 0| -2,388. 0| | Other Investing Cash Flow Items, Total| 0. 0| 2,235. 0| 10,678. 0| 6,187. 0| 8,090.
0| Sale of Business| 0. 0| 0. 0| 382. 0| 380. 0| 171. 0| Sale/Maturity of Investment| 0. 0| 17,987. 0| 74,344. 0| 56,927. 0| 38,065. 0| Purchase of Investments| 0. 0| -18,341. 0| -78,200. 0| -61,461. 0| -37,366. 0| Other Investing Cash Flow| 0. 0| 2,589. 0| 14,152. 0| 10,341. 0| 7,220. 0| | Cash from Investing Activities| 0. 0| 1,167. 0| 6,619. 0| 2,796. 0| 5,702. 0| | | | | | | Financing Cash Flow Items| 0. 0| 79. 0| -3,570. 0| -743. 0| -521. 0| Other Financing Cash Flow| 0. 0| 79. 0| -3,570. 0| -743. 0| -521. 0| | Total Cash Dividends Paid| 0. 0| 0. 0| 0. 0| 0. 0| 0. 0| Issuance (Retirement) of Stock, Net| 0. 0| 530.
0| 2,450. 0| 2,270. 0| 1,651. 0| Issuance (Retirement) of Debt, Net| 0. 0| -721. 0| -21,710. 0| -16,098. 0| -14,321. 0| Cash from Financing Activities| 0. 0| -112. 0| -22,830. 0| -14,571. 0| -13,191. 0| | | | | | | Foreign Exchange Effects| 0. 0| -276. 0| 454. 0| 524. 0| 302. 0| Net Change in Cash| 0. 0| 3,462. 0| -910. 0| 3,749. 0| 1,962. 0| | | | | | | | | | | | | Net Cash – Beginning Balance| 0. 0| 20,894. 0| 21,804. 0| 22,049. 0| 22,049. 0| Net Cash – Ending Balance| 0. 0| 24,356. 0| 20,894. 0| 25,798. 0| 24,011. 0| These cash flows do not include any considerations for interest expense and/or dividends.
The IRR is very fast and profitable, by the sixth year of ROI’s the profits will surpass any amount of interest and/or dividend that would be made on a yearly and/or monthly base. Machine A Cash Flows 0 1 2 3 4 5 +—————–+—————–+—————–+—————–+—————–+ -120,000 125,000 125,000 125,000 125,000 125,000 Net Present Value:| $253,827. 72| PV of Expected Cash flows: | $373,827. 72| IRR= 100. 99% Machine B Cash Flows 0 1 2 3 4 5 +—————–+—————–+—————–+—————–+—————–+ -60,000 135,000 135,000 135,000 110,000 110,000
Net Present Value:| $234,101. 64| PV of Expected Cash flows: | $294,101. 64| IRR= 223. 25% A MIRR calculation may provide a unique solution in this case. The MIRR procedure uses specified reinvestment and borrowing rates. Negative cash flows are discounted at a “safe” rate that reflects the return on an investment in a liquid account. The figures generally used are a short-term security or bank passbook rate. Positive cash flows are reinvested at a “reinvestment” rate that reflects the return on an investment of comparable risk. An average rate of return on recent market investments might be used. Strengths
Community Relations: Ford has made numerous efforts to target the surrounding community. A breast cancer awareness campaign was created in which celebrities are enlisted to tell how breast cancer has affected them. The company takes strides to protect the environment demonstrated by the development of an electric vehicle and efforts to increase fuel efficiency. Employee Relations: Ford provides incentives for employees to work at high quality levels. Higher wages are also characteristic of the company. Hourly workers typically have wages from $19-$26 an hour, while skilled trade workers make $21-$30 an hour.
The company also created a Family Service and Learning Center program for Ford workers, family members and retirees, offering health classes, after-school tutoring and trips for seniors. Investor Relations: Ford maintains a high level of communication with its investors and potential investors. The company accurately and honestly reports earnings and losses in ways easily accessible by the public via company Web site, mailings, and print materials by request. Weaknesses Investor Relations: The recessing economy, investors are worried about slumping sales and profits.
Although ford has shown they can withstand to storms investors will be very cautious and play it safe when investing.. Customer Relations: Listed in the annual report are a number of ways Ford targets their customers. The company provides a Customer Insight Center to train employees to respond to the needs of customers, interact with customers at race events, and talk with customers “face-to-face at auto shows and at dealerships. ” Ford does nothing else to show their customers how important they really are. Opportunities and Threats Opportunities: Since the terrorist attacks on Sept. 11, patriotism has surged through the
United States. Many consumers will seek American products, benefiting companies such as Ford. Investors will be encouraged by this plan’s opportunity to increase profits and revenue, leading to greater investor trust in the company. Ford will look to lead the industry in alternative fuel cars and is proving they have what it takes. Threats: The recession and the war discourage people from investing in the luxury of new cars, thus Ford’s appeal has lessened significantly, threatening the entire company. The increase of global market presence from other automobile companies will cause Ford to lose market share in the automobile industry.
15 months ago, shares of Ford reached a low of $1. 01. The stock is currently close to $12 today. Ford has made a profit in the last two quarters and the company has beaten Wall Street’s earnings forecast for the last four quarters in a row. In November, Wall Street was expecting a loss of 12 cents a share. Instead, Ford posted a profit of 26 cents a share. That impressed Wall Street so much that they expected 26 cents a gain when Ford reported earnings again a month ago. This time, Ford said it made 43 cents a share (investing. businessweek. com). Ford Motor Co.
saw last month’s sales rise 25 percent from a year earlier, while General Motors Co. climbed 6. 4 percent. GM said it earned $2. 55 per share for the quarter. GM has not reported a profit since the second quarter of 2007. Goals and Objectives Ford’s Mission Statement: We are a global, diverse family with a proud heritage passionately committed to providing outstanding products and services that improve people’s lives Ford Motor Company has achieved the goal of making its automobiles unique because of its heavy, strong trucks, efficient gas saving sedans, and unique structure and appearance.
Due to constant brainstorming sessions on designs and creativity, Ford Motor Company has developed some of the top rated vehicles in the United States. Moreover, it will continue to strive to meet the needs of consumers with fresh designs, products, new ideas, and features to its automobiles. Ford Motor Company has a goal and plan it is stated as the following; * Aggressively restructure to operate profitably at the current demand and changing model mix * Accelerate development of new products our customers want and value * Finance our plan and improve our balance sheet * Work together effectively as one team
* One Goal = an exciting viable Ford delivering profitable growth for all. With Ford ability to retain profits in the economy that we are currently in speaks for itself. During the beginning of the current recession, Ford Motor Company received 0. 00 dollars of bail outs from the government, this speak highly of their financial management abilities as a company. Ford Motor Company Leadership Ford leaderships from the top included William clay Ford Jr. , (born May 3, 1957 in Detroit, Michigan), is the great-grandson of Henry Ford, and serves as the Executive Chairman of the Board of Directors of Ford Motor Company.
Ford also served as the President, Chief Executive Officer, and Chief Operating Officer until turning over those roles to former Boeing executive Alan Mulally in September 2006. Ford is also the Vice Chairman of the Detroit Lions NFL franchise. Alan Roger Mulally (born August 4, 1945) is an American engineer and businessman. He is currently the President and Chief Executive Officer of Ford Motor Company. Mulally was previously executive vice president of Boeing and the CEO of Boeing Commercial Airplanes (BCA). Mulally began his career with Boeing as an engineer in 1969.
Mulally was largely credited with BCA’s resurgence against Airbus in the mid-2000s. Mulally was named the President and CEO of Ford Motor Company on September 5, 2006, succeeding William Clay Ford, Jr. , who remained as Executive Chairman of the company’s Board of Directors (en. wikipedia. org). With the combined experiences of these two key leaders, Ford has retained their strength in the market place. They both have the abilities to run large companies and with the insight if Ford Jr. , thus far has seemed to lead the company to a profit and maintain it market share in the world economy.
Lastest Full Context Quarter Ending Date| 2010/06| | Gross Profit Margin| 18. 9%| | | | | EBIT Margin| 10. 4%| | | | | EBITDA Margin| 9. 4%| | | | | Pre-Tax Profit Margin| 5. 5%| | | | | Interest Coverage| 2. 1| | | | | Current Ratio| 2. 3| | | | | Quick Ratio| 2. 2| | | | | Receivables Turnover| 1. 6| | | | | Inventory Turnover| 17. 0| | | | | Asset Turnover| 0. 7| | | | | Revenue to Assets| 0. 7| | | | | Return on Invested Capital| 5. 9%| | | | | Return on Assets| 3. 7%| | | | | Long-Term Debt to Total Capital| 1. 03| | | | | SG&A as % of Revenue| 9. 5%| | | | | R&D as % of Revenue| 0.
0%| | | | | Receivables per Day Sales| $213. 77| | | | | Days CGS in Inventory| 21| | | | | Working Capital per Share| $23. 21| | | | | Cash per Share| $5. 33| | | | | Cash Flow per Share| $1. 95| | | | | Free Cash Flow per Share| $-5. 54| | | | | Tangible Book Value per Share| $-1. 09| | | | | Price/Cash Flow Ratio| 6. 2| | | | | Price/Free Cash Flow Ratio| -2. 2| | | | | Price/Tangible Book Ratio| -11. 05| | | | | Most recent data | | | | | Price Earnings Ratios| Current P/E Ratio| 7. 3| | P/E Ratio 1 Month Ago| 7. 8| | | | | P/E Ratio 26 Weeks Ago| 15. 1| | | | |
P/E as % of 2 Digit MG Group P/E| 50%| | | | | P/E as % of 3 Digit MG Group P/E| 64%| | | | | 12 Month Normalized P/E Ratio| 7. 3| | | | | In the comparison graph above, Toyota lost 1. 4% and Honda lost 0. 7%. Meanwhile, Nissan and Hyundai gained 0. 9% and 0. 8%, respectively. GM also captured 0. 4% more of the pie, while Ford and Chrysler’s share remained approximately flat. The prevailing narrative from the past few months was repeated in July. Hyundai and Nissan continue to shine; the U. S. automakers are slowly recovering; and Toyota and Honda don’t appear to be keeping up (theatlantic.
com). | | | | | | | | 10/01/2010| | | | | | | | | | | REFUNDING OPERATIONS| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Input Data (in Millions of dollars)| | | | | | | | | | | | | | | | Existing bond issue| | $75,000,000 | | New bond issue| $75,000,000 | | Original flotation cost| | $5,000,000 | | New flotation cost| $5,000,000 | | Maturity of original debt| 30 | | New bond maturity| 25 | | Years since old debt issue| 5 | | New cost of debt| 10%| | Call premium (%)| | 12%| | | | | | Original coupon rate| | 12%| | Tax rate| | 40%| | After-tax cost of new debt| 6.
0%| | Short-term interest rate| 6%| | | | | | | | | | | Schedule of cash flows| | | | | | | | | | | | | Before-tax| After-tax| | | Investment Outlay| | | | | | | | Call premium on the old bond| | | ($9,000,000)| ($5,400,000)| | | Flotation costs on new issue| | | (5,000,000)| (5,000,000)| | | Immediate tax savings on old flotation cost expense| | 4,166,667 | 1,666,667 | | | Extra interest paid on old issue| | | (750,000)| (450,000)| | | Interest earned on short-term investment| | | 375,000 | 225,000 | | | Total after-tax investment| | | | ($8,958,333)| | | | | | | | | | | |
Annual Flotation Cost Tax Effects: t=1 to 20| | | | | | Annual tax savings from new issue flotation costs| | $200,000 | $80,000 | | | Annual lost tax savings from old issue flotation costs| | (166,667)| (66,667)| | | Net flotation cost tax savings| | | $33,333 | $13,333 | | | | | | | | | | | | Annual Interest Savings Due to Refunding: t=1 to 20| | | | | | Interest on old bond| | | | $9,000,000 | $5,400,000 | | | Interest on new bond| | | | (7,500,000)| (4,500,000)| | | Net interest savings| | | | $1,500,000 | $900,000 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Calculating the annual flotation cost tax effects and the annual interest savings| | | | | | | | | | | | | Annual flotation Cost Tax Effects| | | Annual Interest Savings| | | Maturity of the new bond (Nper)| 30 | | Maturity of the new bond (Nper)| 25 | After-tax cost of new debt (Rate)| 6. 0%| | After-tax cost of new debt (Rate)| 6. 0%| Annual flotation cost tax savings (Pmt)| $13,333 | | Annual interest savings (Pmt)| $900,000 | | | | | | | | | | NPV of annual flotation cost savings| $183,531 | | NPV of annual interest savings| $11,505,021 | | | | | | | | | |
| | | | | | | | | | | | | Bond Refunding NPV =| Initial Outlay +| PV of flotation costs +| PV of interest savings| | Bond Refunding NPV =| ($8,958,333)| +| $183,531 | +| $11,505,021 | | | | | | | | | | | | Bond Refund NPV =| $2,730,218. 291 | | | | | | | | | | | | | | | | Our refunding analysis tells us that should the firm proceed with the bond refunding; the project will have a positive net ‘present value. Although, unlike traditional capital budgeting decisions, the positive NPV does not tell the firm if it should refund the bond issue.
That decision is dependent upon several external factors, including interest rate ‘expectations. Three strategic factors influence capital allocation decisions by managers of all organizations: organizational mission, availability of funds, and cost of funds. Defining the organization’s mission is of the greatest importance to any organization’s success. In times of economic turmoil an organization is challenge to refine and refocus its mission. One of the key drivers of a capital budget is the available cash for required expenditures.
The determination of capital allocation begins when management completions the organization’s financial projections, including its cash position. After managers have reviewed their organization’s mission and determined the available cash level for capital projects, only then can they evaluate, prioritize, and select projects. The initial phase of the project evaluation process should include the classification of projects into several categories such as the following: * Replacement and maintenance projects * Mandatory projects (legislatively or statutorily necessary) * Core mission investments
* New business and market expansion projects This approach does prioritize spending, but it does not necessarily achieve the desired objectives of support of the strategic mission of the facility or system, efficient use of limited resources, support of the financial goals of the organization, and recognition of the cost of funds (allbusiness. com). The Ford motor company uses these and other processes to insure financial stability in the automotive and financial markets are almost certain. The longevity and profitability of the company is fact that the processes they are using are working.
These are the bases of any business that is public and wanting to grow. Most importantly companies of this size must raise the necessary fund to continue to grow in this ever changing economy. Work Citied http://en. wikipedia. org/wiki/History of Ford Motor Company http://investing. businessweek. com/research/stocks/snapshot/snapshot. asp? ticker=F:US http://www. theatlantic. com/business/archive/2010/08/combined-big-7-auto-sales-up-in-july/60870/ http://www. npr. org/templates/story/story. php? storyId=129149393 http://www. allbusiness. com/company-activities-management/operations/14381518-1. html