Ford Motor Company

Ford Motor Company

Introduction

Ford Motor Company is United States based automotive manufacturing company which has its headquarter in Michigan. Ford Motor Company was incorporated as a Public Limited Company in 1903 and its founder was Henry Ford. Since its inception as a motor company Ford has been engaged in manufacturing automobiles, commercial vehicles and luxury cars. Ford Motor has also been engaged in manufacturing tractors, trucks and other heavy duty vehicles. Ford Motor Company was the pioneer of industrial engineering and it was Ford that introduced the manufacturing of automobiles on large scales using the assembly line concept. Henry Ford's manufacturing techniques were and are still being used around the globe and his methods came to be known by the name 'Fordism'.

Current rate of return on risk-free assets

In the Financial markets, assets which are free of risks due to governmental backing and support are present for the investors to invest in and stay safe of the investment risks. The return which is expected to be generated from the risk free asset is then known as the risk free rate. The return on assets which have risks associated with them have an expected rate of return which is calculated as the risk free rate plus a risk premium (Damodaran, A., n.d). The risk free assets that are considered here are the 10 year maturity treasury bills.

The Current rate of return on the risk free assets is 3.67%.

Therefore for the purpose of using the Capital Asset Pricing Model we will use a risk free rate of 3.67%.

Ford Motor Company Beta

The Beta of a stock measures the comparative volatility of the stock as compared to that of the market. It measures the extent to which the returns of the stock are sensitive to the market returns. The market is considered to have a beta of 1 so that the beta of the stock is compared to the beta of the market and the movement of the stock is determined. For example, If a stock has a beta which is greater than 1 it shows that the stock moves in the same direction as that of the market and that the returns of the stock are greater in amount than the market.

In case of Ford Motor Company the Beta is 2.28 which is greater than 1, the beta of the market, and it shows that the returns on the stocks of Ford Motor Company change by twice the magnitude of the return of the market. In simple terms, if the returns of the market increase or decrease by 2% the return on the stocks of the company having a beta of 2 will increase or decrease by 4%.

The Beta of Ford Motor Company is 2.28 which will be used in the Capital Asset Pricing Model to determine the required or expected rate of return (Google Finance, 2013).

Required Return on Market

The Risk premium is 8.04% and the risk free rate of return is ...