American Recovery and Reinvestment Act 2009

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Recommended: Explain the importance of risk analysis in investement decision

The financial crisis of 2008 was estimated to be the most dangerous since the Great Depression of the 1930s (The Financial Crisis, 2009). The catalyst was the 2007 bubble burst of the housing market, which spread quickly to the US financial sector and ultimately affected the global economy. The American auto industry was devastated by this crisis. Detroit’s big three companies, Ford, Chrysler, and GM, had their debt problems exposed as a result. Increased debt and lower cash flows forced the automotive giants to seek solutions that would allow them to remain a viable entity in the coming years. The ripple effect of the automotive meltdown moved to the surrounding communities. Detroit’s communities were hit very hard. These communities are heavily reliant on the automotive and the complementary raw materials produced. When the big three were in an insolvent situation, Detroit’s communities began to crumble. This led Detroit to declare bankruptcy on July 18, 2013 ("Key Dates in," 2014). As domestic problems continued to manifest, they spilled over into global communities. A global recession began to occur by the end of 2008. At the end of 2008, the Dow Jones value had decreased by 33.8%, and China, Germany, and Japan were locked in recession. To help stimulate the American and world economies, the US Government passed the American Recovery and Reinvestment Act 2009. This economic stimulus package was created to restore economic growth and trust in the financial industry (Berk & DeMarzo, 2011). The assessment will evaluate how the Act’s allowance for accelerating bonus depreciation can impact a security’s value. The assessment will further address how companies can use provisions of this Act to assist with optimizing a security's risk. The Capital Asset Pricing Model (CAPM) will be used to evaluate common risk shared by all securities in the market. The 2008 global financial crisis illustrates the power of market risk. References: A giant falls. (2009, June 4). The Economist. Retrieved from http://www.economist.com/node/13782942 Berk, J., & DeMarzo, P. (2011). Corporate finance: The core, second edition. (2nd ed.). Boston, MA: Prentice Hall. Capital asset pricing model. (n.d.). Retrieved from http://www.financeformulas.net/Capital-Asset-Pricing-Model.html Key dates in Detroit's bankruptcy. (2014, February 3). Detroit Free Press. Retrieved from http://www.freep.com/article/20130912/news01/309120122/detroit-bankruptcy-hearings-date-schedule-rhodes The financial crisis of 2008: Year in review 2008. (2009). Encyclopaedia Britannica. Retrieved from http://www.britannica.com/EBchecked/topic/1484264/The-Financial-Crisis-of-2008-Year-In-Review-2008

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