Assume the VEP plan is being implemented and as a Ford’s shareholder, you have to make a choice between cash, shares or a combination of cash and shares.
Case Study- Ford Motor Company’s Value Enhancement Plan (A)
You are required to read carefully the case study and hand in your answer to the following four questions:
1. Discuss the decision to distribute cash back to Ford’s shareholders regardless of the form of distribution (one-off cash dividend, share repurchase or the VEP plan). Are Ford’s shareholders better off with the cash distribution? Does the cash distribution affect Ford’s value through capital structure?
2. A one-off cash dividend and a share repurchase plan are two alternatives to the VEP plan for distributing cash to shareholders. Explain pros and cons of the three options for distributing cash to shareholders.
3. Assume the VEP plan is being implemented and as a Ford’s shareholder, you have to make a choice between cash, shares or a combination of cash and shares. Discuss the benefits and costs of the options and make your final choice assuming you are (a) a Ford family member holding Class B shares; (b) an institutional investor; (c) a regular outsider shareholder.
4. Using the information on betas in Exhibit 10 and using the balance sheet information in Exhibits 6 to 9, calculate the WACC in 1999 for Ford, DaimlerChrysler and General Motors. Justify and explain your calculations. Explain why the three companies may have different WACC.