Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

Instructions

In this fictitious case, you are a financial analyst in the Automotive Strategy staff of One World Automotive,

a global manufacturer of automotive vehicles and products. Your responsibilities include evaluating the

financial and strategic implications of corporate investment decisions.

Attached are relevant e-mails and data you have received from your manager, Les Dett.

For your meeting with the Ford Finance interviewers:

1. Review the attached material and prepare a one-page executive summary that addresses the

alternative strategies outlined in the series of e-mail communications with Les Dett and others.

2. Please include the following items in your summary:

a. Financial analyses for each alternative you consider, as directed by Les in his e-mail

b. Your recommendation for which alternative should be chosen (if any)

c. A brief discussion of additional information that would assist you in your evaluation of the

alternatives

3. Bring two additional copies of your one-page executive summary to the interview. Please bring

your back-up calculations and any supplemental analyses that you have done.

4. It is expected that you will work independently, and that you will keep your work confidential.

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

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Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

E-Mail for Analyst

From:

To:

Subject:

Date:

Les Dett

Analyst

C-Car Capacity Study

June 24, 2014 1:42 pm

Analyst,

I need your help evaluating a manufacturing decision. If you look at the attached volume schedule, you can see

that we do not have sufficient capacity to meet global demand for our small car, the Vision. There are many

factors to consider as we think about how to increase our capacity, but as we enter into the discussion, I want to be

armed with appropriate financial data. Would you please look at the attached data Ive been able to collect and

evaluate some alternatives?

Here are three ideas I had. Im not sure they all make sense, but let me know what you think:

1. We have already closed our assembly plant in Alabama because the Nomad has gone out of production.

Could we reopen that plant to meet the global shortfall?

2. We could take advantage of government incentives in India and build a new facility in Chennai, taking

advantage of a growing automotive supply base there.

3. We have excess C-Car capacity in Europe (at our Saarbrcken plant) for most of the business plan period.

Perhaps we could use that excess capacity to meet global demand.

Assume in the cases of #1 and #2 that the plants in question would have a base capacity of 350,000 units but that

we could get an incremental 10% volume in each year at no cost if needed. Ill have Bob Lee in manufacturing

provide you with some information on labor costs and investment levels. Theres no opportunity to expand the

capacity at our plant in Saarbrcken, Germany because it is landlocked.

Please lay out the alternatives so we can understand the impact on the income statement (including operating

margins) and do a cash flow analysis. For cash flow assume well stop shipping at the end of 2021 in any

scenario. Let me know which one youd recommend based on the available data, and please let me know also

what other data would be required to enhance your analysis.

Regards,

Les Dett

Controller, Automotive Strategy

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

2

Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

ONE WORLD AUTOMOTIVE

C-Car Sales & Production Volumes

US

2016

2017

2018

2019

2020

2021

Total Industry (Mils.)

C-Segment (Mils.)

Segmentation Percent

16.0

2.6

16%

16.5

3.0

18%

16.5

3.3

20%

16.8

3.4

20%

16.9

3.4

20%

17.0

3.4

20%

OWA C-Car Volumes (000)

Share of Segment

333

13%

386

13%

429

13%

437

13%

439

13%

442

13%

Available Capacity (000)

250

250

250

250

250

250

Surplus/(Shortfall)

(83)

(136)

(179)

(187)

(189)

(192)

Europe

2016

2017

2018

2019

2020

2021

Total Industry (Mils.)

C-Segment (Mils.)

Segmentation Percent

23.5

3.8

16%

23.5

3.8

16%

24.0

3.8

16%

24.0

4.1

17%

24.5

4.4

18%

25.0

5.0

20%

OWA C-Car Volumes (000)

Share of Segment

376

10%

376

10%

384

10%

408

10%

441

10%

500

10%

500

500

500

500

500

500

92

59

-

Available Capacity (000)

Surplus/(Shortfall)

124

124

116

Asia

2016

2017

2018

2019

2020

2021

Total Industry (Mils.)

C-Segment (Mils.)

Segmentation Percent

40.0

8.0

20%

42.0

8.4

20%

44.0

8.8

20%

46.0

9.2

20%

48.0

9.6

20%

50.0

10.0

20%

OWA C-Car Volumes (000)

Share of Segment

600

8%

672

8%

704

8%

736

8%

768

8%

800

8%

Available Capacity (000)

550

550

550

550

650

650

Surplus/(Shortfall)

(50)

(122)

(154)

(186)

(118)

(150)

Total (including other)*

Total OWA C-Car Volumes (000)

1,459

1,584

1,667

1,731

1,798

1,892

* Other markets include South America, Africa, and Direct Markets

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

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Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

E-Mail for Les Dett

From:

To:

Subject:

Date:

Bob Lee

Les Dett

RE: C-Car Capacity Study - Assumptions

June 23, 2014 5:35 pm

Les,

Heres the data my team was able to pull together.

By the way, I mentioned this study to Jim in Logistics for his input and he said we dont want to forget about Freight

for shipping the units. The Vision has a normal freight cost to dealers of about $450 per unit within the region

where its built, but inter-regional ocean shipping for vehicles is significantly more expensive. He said you should

assume an incremental $600 per unit cost for shipping between any regions and then another $200 per unit cost

for units being shipped from Asia into North America due to special ocean shipping requirements.

From a Human Resources perspective, re-opening the Alabama plant would mean new jobs in the U.S. that the

unions would support, but were unlikely to get any concessions on labor costs to make it happen.

If you need any more data from my team, just let me know.

Bob Lee

Manager

Manufacturing Finance

----Original Message-----From:

Loretta Call

To:

Bob Lee

Subject:

RE: C-Car Capacity Study - Assumptions

Date:

June 23, 2014 4:30 pm

Bob,

Per the discussion at our team meeting, we were able to pull together some data for the study.

The Alabama plant is older but it could be retooled from truck production to build small cars for about $475 million.

This would be all tooling with an expected accounting life of 5 years. We could have the plant re-tooled for

production at the start of 2016. We should assume all the spending takes place in 2015.

Since Chennai #1 is already at maximum capacity, a new facility would be required and is considerably more

expensive than the Alabama re-tool. After government incentives, wed need about $250 million to secure the land

and facilities and another $425 million in tooling. Per corporate guidelines, the land and facilities are amortized

over 50 years, but the tooling would have the same 5-year life as the Alabama tooling. We could have the plant up

and running for January 2017 if we pay for land & facilities in 2015 and tooling in 2016.

The good news is that Saarbrcken already builds the Vision for Europe and even though there are minor

differences between the European version and the Vision sold in North America and Asia, no new tooling would be

required and any other fixed costs could be absorbed within the plants existing budget.

I didnt include the labor rates here because you said Les already had that data, but let me know if you need them.

I just sent the latest rates to Casey for their review so they should be up to date.

Loretta Call

Supervisor

Manufacturing Finance

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

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Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

E-Mail for Les Dett

From:

To:

Subject:

Date:

Casey Bishop

Les Dett

Vision Per Units Purchasing Update

June 24, 2014 8:03 am

Les,

Further to my note below, Purchasing has just confirmed that with some changes to their supplier footprint

assumptions on the Vision, we can take advantage of some lower wages and local manufacturing incentives and

achieve a $200 per unit savings on material cost for any units sourced out of Asia.

Casey

----Original Message-----From:

Casey Bishop

To:

Les Dett

Subject:

Vision Per Units

Date:

June 23, 2014 2:15 pm

Les,

I got a call that you needed some data for the Vision. Our present assumptions are shown below and are based on

the latest projections and volumes. These are global averages per unit, except as noted.

Variable cost per unit is $14,000* and includes material, warranty and freight costs to the plant. I think Bob gave

you the freight costs from the plant.

Structural Costs are broken out as follows:

Allocated Fixed Costs on existing production - $1,100 per unit

Labor and Overhead - $1,200 per unit (but varies by location -- see below)

Region

Labor and Overhead Cost

(per unit)

North America (Alabama)

Europe (Saarbrcken)

Asia-Pacific (Chennai #1)

$1,500

$2,000

$500

Marketing is still carrying a global average price of $18,000 per unit and with fuel prices the way they are and the

new technology being offered on the Vision, we arent expecting to have to offer any incentives to meet our sales

projections.

* There is an open assignment to Purchasing to review these costs and identify opportunities around material

cost.

Casey Bishop

Product Development Controller

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

5

Ford Finance Recruiting

FINANCE MBA CASE FOR CAMPUS INTERVIEW

MEMO:

From:

To:

Subject:

Date:

Corporate Treasurers Office

All Global Car Finance Employees

Corporate Finance Assumptions

June 1, 2014

We want to take this opportunity to remind all Finance employees of the Corporate

assumptions. Using these common assumptions in our analysis across the all functions and

regions ensures that we provide our operating management with consistent analysis and allow

them to make the best decisions for the Company.

Corporate Weighted Average Cost of Capital 12%

WACC should be used as the standard hurdle rate for most decisions.

Corporate Tax Rate -- 35%

Depreciation

Tooling & Equipment varies based on expected life

Land, Facilities 50 years

Assume straight line depreciation in all cases

Operating Margin

Operating margin is equivalent to Profit Before Tax divided by Total Revenue. Profit Before Tax

is calculated as follows:

Net Revenue

Less Variable Cost

Less Labor & Overhead

Less Program Spending

Less Other Fixed Cost

Inventory Valuation

Inventory should be valued on a First In, First Out basis

Note: Ford Finance assessment material. Data are fictional and are not an assessment of financial performance.

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