You are the CFO of Ford Motor Company (the company) considering taking on a proj

Question

You are the CFO of Ford Motor Company (the company) considering taking on a project that requires $10 million in preliminary funding (in other words, the project will acquire $10 million in costs before it becomes profitable. Should the company undertake this project? Justify your opinion. In principle, undertaking a project involves making financial decisions that could make or break the project. How do you plan to finance the project? There are plenty of financing options, including: common stock, preferred stock, debt (many debt options), bank loans, and internal cash. Is there one financing mix that is better than the rest? Explain your rationale. Support your work with research.

Explanation / Answer

Any company doesnt get profits immediatley in the first year. For example, Amazon took lot of years to become profitable. One more example is facebook. We know the cash out flow data as you mentioed approx. $10 million. Based on the estimates and forecasts only we can arrive to the decision of undertaking project or not. First of all, we need to estimate the cash inflows that are possible at regular intervals, say yearly based on the forecasts of future cash flows. Based on these estimates, we can find the break even point where our revenues are equal to total costs. Let us say if the break even period is 10 years. If we can infuse cash upto 10 years regularly for operating the company apart from initial investment, then we can go ahead with the project. Fiancing decisions depends on the market you are investing in, like the expected growth, competitors presence in the market, research focus etc.

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