Shareholder Decision Making for Profitability
Added on 2020-06-06
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Case Study
Table of ContentsINTRODUCTION...........................................................................................................................1TASK...............................................................................................................................................1Should Ford motors go with VEP:..............................................................................................1CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONFord Motor firm was founded in 1903 which is ultimately indulge in the automotiveindustry and Henry Ford in Dearborn, Michigan. The company is the second automotivecompany in the world which provides highest employment to the nations which in turn achieveits social objectives and business objectives. In 1908, the ford company bring out Model T thatwas succeed drastically. Afterwords, company decided to provides innovative automotivevehicle which in turn provides optimum results to the firm. However, this can be said thecompany largely have their own voting power in terms of decisions. That is the reason, theyadopt the Value Enhancement Plan in order to provides better platform to their shareholders(Lorenzen, Leber and Blankenship, 2010). The cited company have enough cash which isutilised by the firm to implement VEP in an effective manner. TASKFord motors go with VEP:Ford value Enhancement plan is launched in April 2000, under this they have declared ashareholders VEP to take advantage of the firms ownership structure. The ford motors hadaccumulated $23 billion cash reserves and under the VEP, it would providing a sufficient amountof return as %10 billion of cash to its shareholders. In respect to each share which are presentheld by family member of ford motors. The plan is providing stockholders a new option ofgetting %20 in respect to either cash or additional new common shares of ford motors.According to the mention case study, it has been analyse that value enhancement plan(VEP) ismade for the purpose of attaining aims to align the interest of different shareholders throughoffering them various option (Falagario and et.al., 2012). Such as:The choice of $20 in cashAdditional new common shares or combination of cashOffering new share Based on the following evaluation, Ford motors should go ahead with the current ValueEnhancement plan. There are necessary significance of VEP, as it has the feature of stock spiltand share repurchase options. The price of ford's stock is reduced by $20 which provide theactual cost in present time is about $26. The plan is just a kind of situation of stock repurchasesince, the amount of $1000 share shown to the investor is at the expenditure of reducing certain1
holding rights that can be attain by applying common repurchase plan. This may consists ofvoting right options of ford in which 6% to 5% is termed as the important rate they are gettingfor expenses to individual investors. A uniform tax treatment for all the shareholder is announced by the company by usingrepurchase or a dividend options. Likewise, it has been assumed that the payout remain constant.There are always a perfect respectable disparities in receiving positive return to the investors bythe ways of issuing securities taxation system. Thus, that is the intention of ford motors, themarket can react adversely to the VEP in longer period of time, if operating performances drop.The voting in favour or against the VEP of the concern company (Larson and Gray, 2013). Itcannot be advisable for the company to go ahead with the Value enhancement plan as decided bythe company.Some other aspects are related with investors those have a preferred cash in getting moreamount of shares. Then a simple small stock split announcement can be more enough instead offormulating an intricate and complex form of payout. As per the yield generated by company$57.748 shares that provided a total of 37 shares. They can also attain advantages from the factsthat capital gains tax can be deferred by a delayed sales of total shares. As per the mention case,their voting rights can be maintained at 40% in accordance of total stake being diluted to 3. As,an investor they need to decide a perfect option of shares over total cash exempted from tax. TheValue enhancement plan under this, a taken as blueprint of stock split. The connection ofmanagerial performances with relation to share price of the company. It influence managers totake appropriate decision regarding allocation of stock prices to be kept at maximum level. a. Ford family member holding Class B sharesAccording to the situation, shareholder would have option to exchange their current stockand class B share, one for one ford new common share and new class B share. If family sells toomany shares of its class B stock, in paying for estate taxes, to cover personal expenses. If thefamily holding fall to between 33.7 million and 60.7 million share of Class B stock. The familyheld only 30% of voting right. If class B shares are sold in outside the family they can revert it tocommon stock.b. An institutional investor, such as TIAA-Cref or the Calpers 2
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