Case 3 Question Essay

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Finance 414- Individual Case Questions: “Massey-Ferguson, Ltd.” SS13 You are responsible for handing in written answers to the following questions drawn from the Massey-Ferguson case. You can work with others on this assignment, but each individual must hand in their own set of answers. 1. Net sales for Massey-Ferguson actually increased between 1979 and 1980. Despite this, net income and income from continuing operations both dropped sharply in 1980. Which item on the income statement was most responsible for this drop in income? 2. What was Massey-Ferguson’s market value of common stock at the end of fiscal 1980? Was this market value greater than or less than Massey-Ferguson’s book value of equity? 3. Why would the Canadian government have any interest in helping Massey-Ferguson refinance its debt? 4. Why would it be difficult for Massey-Ferguson to conduct an equity issue to pay down its debt? Discussion questions: In class we will be discussing the following questions related to Massey-Ferguson. You do not need to answer those questions, but you should think about them in advance so that you are prepared for the class discussion. 1. How did Massey-Ferguson’s financing policy compare to its competitors in the degree to which it exposed the firm to increases in interest rates? 2. Why might Massey-Ferguson’s sales in 1980 have been lower than what would have been observed if Massey-Ferguson was entirely equity financed? 3. In 1980 Deere & Company raised its level of capital expenditures significantly despite the fact that worldwide demand for farm equipment was at depression levels. a) Why would it make sense for Deere and Company to invest so heavily? b) Using data from the exhibits, how did Deere and Company finance this increase in capital expenditures. c) If Deere and Company wanted to finance its
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