Module 6: Cost of Capital and Valuation. The Ford Motor Company By: Paula Casini. Ford Motor Company. Automotive Sector – sale of vehicles, service parts and accessories Ford North America Ford South America Ford Europe Ford Asia Pacific Africa Financial Services Sector
Ford Motor Company Automotive Sector – sale of vehicles, service parts and accessories Ford North America Ford South America Ford Europe Ford Asia Pacific Africa Financial Services Sector Ford Motor Credit Company – vehicle related financing, leasing and insurance Other Financial Services – holding companies and real estate
Products and Services Brand Name Vehicles: Ford and Lincoln Retail Sales Fleet Sales Vehicle Financing Automotive Components Market Share = 14.0%
Cost of Equity Capital Captures the risk to the company’s equity holders of getting distributions (dividends or increases in share price) Measure using the Capital Asset Pricing Model (CAPM) Req = Rrf + [B * (Rmkt – Rrf)]
Analysis of Bloomberg Beta Standard Error = 0.207 Raw Beta = 1.241 95% confidence interval: 1.034 to 1.448 Adjusted Beta = 1.160 95% confidence interval: 0.953 to 1.367
Regression of Beta
Beta Summary Mean Beta from other sources = 2.00 Beta Range from other sources = 0.73 to 2.6 Bloomberg Beta Raw Beta = 1.241 Adjusted Beta = 1.160 Beta Confidence Intervals from Bloomberg Raw Beta = 1.034 to 1.448 Adjusted Beta = 0.953 to 1.367 Beta Confidence Interval from Regression 1.19 to 3.29 Beta used for WACC = 1.241
Risk Free Rate 30 year Treasury yield 3.66% As of Monday, February 11, 2014
Market Risk Premium Difference between market return and risk free rate Market risk premium = 5% Market risk premium can range from 3% to 8%