Current project
Presently, Ford Motor Company plans to install a photovoltaic system that is powered by solar energy at their Michigan plant. The project required a total of three million American dollars to be complete. Raising this amount of money appeared to be an insurmountable task, due to the after-effects of the economic downturn. This reduced the amount of disposable income, hence the spending power of the target market (Solar server, 2010).
The meltdown also affected the stock markets and reduced the value of the company’s stocks. This eliminated the option of raising funds through equity. Debt financing remained the only viable source of income. This concept was enhanced by the fact that projections revealed a potential for growth. This guaranteed a steady and continued market for the vehicles once their manufacture was complete (Seidman, 2004).
It should be noted that grants offered a better option since the repayment package was flexible. It also came with a lesser profit margin, ensuring the company spent less than it would have by taking a bank loan. I believe Ford made the right decision by opting for a grant from the Public Service Commission of Michigan. This is because the grant was accompanied by government support, due to the provision of experts to oversee the implementation of the process (Seidman, 2004).
In addition, the grant will be repaid only after the company resumes profitability. This implies that they will have ample time to implement the project and nurture it to profitability before offsetting their debts. Alternatively, the firm may opt to convert its debt to equity, by floating shares in the money markets. This will provide an alternative source of income for offsetting the debt.
Long term project
In the long term, Ford motors aim to develop environmentally friendly motor vehicles. This initiative has been undertaken in conjunction with the Chinese government. The project entails actual acts of environmental preservation while working to establish environmentally friendly motor engines (Ford, 2010). This implies a massive financial outlay to finance the execution of the entire process.
Since the project will be executed over an extended time frame, a loan would be the best source of income. This option will enable the firm to negotiate for a favorable repayment scheme. As a result, the company will have ample time to establish its systems, initiate the project, and strive to ensure adequate returns before commencing the repayment schedule (Marks, 2005).
Another advantage of taking a loan is the flexibility it offers. The firm can apply for an additional loan after paying off a section of the existing one. This implies the existence of adequate financial cover in case additional funds are required. It also guarantees the smooth implementation of the project until its completion.
A section of these funds may also be plowed into an enterprise run by the firm, to generate additional income. This will go a long way in boosting the firm’s financial health. These funds may also come in handy in repaying a section of the loans taken by the firm (Marks, 2005). Most importantly, repayment methods may be negotiated by the parties involved. This will herald a refund structure that is flexible and acceptable to both parties. Summarily, this provision allows for a revision of the repayment structure. It may be enforceable after a specified period, or after the business picks up well. This implies a reduced repayment period, hence lower repayment amounts.
References
Ford. (2010). Ford, China Forge Long-Term Partnership for Environmental Research. Ford Media. Web.
Marks, K. (2005). The handbook of financing growth: strategies and capital structure. New Jersey, NJ: John Wiley and Sons.
Seidman, K. (2004). Economic development finance. London: SAGE Publishers.
Solar server. (2010). Ford Motor Company to install PV, power storage systems at Michigan auto plant. Solar magazine. Web.