Question 2 (60 out of 150 points) answer all questions (Questions 2a, 2b, 2c) Question 2a. Below is the income statement of Ford Motor Co.. from its 2023 annual report (10-K) report. If the font is too small, please go to: https://shareholder.ford.com/Investors/financials/default.aspx#sec-filings, and search for the income statement and related operations. Wholesales Wholesales consist primarily of vehicles sold to dealerships. For the majority of such sales, we recognize revenue when we ship the vehicles to our dealerships from our manufacturing facilities. See Item 7 for additional discussion of revenue recognition practices. Wholesales in each region and in certain key markets within each region during the past three years were as follows: United States Canada Mexico North America Brazil Argentina South America United Kingdom Germany EU20 (b) Trkiye Europe China (c) Australia India ASEAN (d) Russia International Markets Group Total Company 2020 Wholesales (a) (in thousands of units) 2021 2022 1,826 210 34 1,716 233 2,012 258 40 42 2,081 2,006 2,335 135 27 21 31 26 31 185 81 83 208 227 263 211 152 182 904 806 910 102 72 85 1,020 891 1,014 617 649 495 57 70 71 46 34 67 75 102 14 22 3 284 315 304 4,187 3,942 4,231 (a) Wholesale unit volumes include sales of medium and heavy trucks. Wholesale unit volumes also include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships or others, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, local brand units produced by our unconsolidated Chinese joint venture Jiangling Motors Corporation, Ltd. ("JMC") that are sold to dealerships or others, and from the second quarter of 2021, Ford badged vehicles produced in Taiwan by Lio Ho Group. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue. (b) EU20 markets are United Kingdom, Germany, France, Italy, Spain, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, the Netherlands, Norway, Poland, Portugal, Romania, Sweden, and Switzerland. (c) China includes Taiwan. (d) ASEAN includes Philippines, Thailand, and Vietnam. Revenues Automotive Ford Credit Mobility Total revenues (Note 4) Costs and expenses Cost of sales Selling, administrative, and other expenses Ford Credit interest, operating, and other expenses Total costs and expenses Operating income/(loss) Interest expense on Company debt excluding Ford Credit Other income/(loss), net (Note 5) Equity in net income/(loss) of affiliated companies (Note 14) Income/(Loss) before income taxes Provision for/(Benefit from) income taxes (Note 7) Net income/(loss) Less: Income/(Loss) attributable to noncontrolling interests Net income/(loss) attributable to Ford Motor Company FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (in millions, except per share amounts) 2020 For the years ended December 31, 2021 2022 $ 115,894 $ 11,203 126,150 $ 10,073 47 118 127,144 136,341 148,980 8,978 99 158,057 112,752 114,651 134,397 10,193 11,915 10,888 8,607 5,252 6,496 131,552 131,818 151,781 (4,408) 4,523 6,276 1,649 1,803 1,259 4,899 14,733 (5,150) 42 327 (2,883) (1,116) 17,780 (3,016) 160 (130) (864) (1,276) 17,910 (2,152) 3 (27) (171) $ (1,279) $ 17,937 $ (1,981) U.S. Sales by Type The following table shows U.S. retail sales volume and U.S. wholesales segregated by truck, sport utility vehicle ("SUV"), and car sales. U.S. retail sales volume reflects transactions with (i) retail and fleet customers (as reported by dealers), (ii) government, and (iii) Ford management. U.S. wholesales reflect sales to dealers. Trucks SUVs Cars Total Vehicles U.S. Retail Sales U.S. Wholesales 2021 2022 2021 2022 1,011,198 827,278 67,479 1,905,955 955,543 861,256 942,472 724,539 47,665 49,470 1,051,900 911,203 49,242 1,864,464 1,716,481 2,012,345 For 2023, what is Ford's Sales volume estimate to break even? Assume: The operating expense in 2023 will have grown at a rate (compared to 2022) that is the average of the annual growth rates of each year from 2020 to 2022. The ratio of COGS (or Cost of Sales) to total sales (revenue) in 2023 will be the average of the ratios in the three years of 2020 to 2022. Show each step of your calculations below, which includes the calculation of the average growth rates of operating expense and its application to 2023, the average ratio of COGS to sales and its application to 2023, and the calculation of sales estimate using the formula discussed in class. Question 2b. Break-even point question. Based on your answer in Question 2a, how many trucks does Ford need to sell (as wholesale) in 2023 in the U.S. in a week to break even? Assume that a Ford truck sells for US $50,000, wholesale. Show each step of your calculations below: Question 2c. Based on the income statement above and your break-even point calculations in Question 2b, what is the gross profit, gross profit margin, net profit, net profit margin in 2021, 2022, and 2023? Show your calculations below, and then fill in the summary table below. Note that your calculations for 2023 would be an estimate based on your calculations in question 2b. Calculations: Summary Table Gross profit ($, in millions) Gross profit margin (%) Net profit ($, in millions) Net profit margin (%) 2021 2022 2023 (estimate) Given your answer in the summary table above, how does Ford's costs of operations compare across the three years of 2021, 2022, and 2023? Namely, what might have plausibly changed in Ford's operating expenses and/or costs of goods sold (cost of sales, COGS) in the three years? Explain your answer using/comparing the four measurements (gross profit, gross profit margins, net profit, net profit margin) in the summary table. Length should be 2-3 paragraphs.