The financial crisis of 2008 proved to be the most dangerous since the Great Depression of the 1930’s (The financial crisis, 2009). This crisis left many companies with a shortage of cash flow. Without sufficient cash reserves businesses were unable to cover short-term operations resulting in insolvency. The catalyst, for this crisis, was the 2007 bubble burst of the housing market. This spread quickly to the US financial sector and ultimately affected the global economy. During this crisis the American auto industry exemplified the problems created by over leveraging an operation.
Detroit’s big 3 companies Ford, Chrysler and GM had their debt problems exposed as a result of this financial meltdown. Their inability to cover short term operational expenses forced restructuring, liquidations, cost cutting measures (i.e. lost jobs) and for GM Chapter 11 protection (Bai, 2012). To help stimulate the American and world economies, the US Government passed the Economic Stimulus Act of 2008. This was followed with the American Recovery and Reinvestment Act of 2009. Both economic stimulus packages were created to restore economic growth and trust in the financial industry (Berk & DeMarzo, 2011).
This assessment will create a story board surrounding fictitious businesses which are experiencing financial problems due to the global crisis. It will then evaluate how a business can use various financial methods in support of making good business decisions. This evaluation will consider situations surrounding optimization of tax shielding, bankruptcy protection and how to structure a small technology firm through an understanding of the trade-off theory.
The changes outl...
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...r 7 provides stakeholders greatest value.
Bai, X. (2012). The effects of the 2007-2009 economic crisis in the global automotive industry. (Master's thesis)Retrieved from http://digitalcommons.buffalostate.edu/cgi/viewcontent.cgi?article=1001&context=economics_theses
Berk, J., & DeMarzo, P. (2011). Corporate finance: The core, second edition. (2nd ed.). Boston, MA: Prentice Hall.
Norman, D. (1998). The life cycle of a technology. Nielson Norman Group, Retrieved from http://www.nngroup.com/articles-life-cycle-of-a-technology/
The financial crisis of 2008: Year in review 2008. In (2009).Encyclopeaedia Britannica. Retrieved from http://www.britannica.com/EBchecked/topic/1484264/The-Financial-Crisis-of-2008-Year-In-Review-2008
Trade-off theory of capital structure. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Trade-off_theory_of_capital_structure
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