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Assess Toyota's decision to issue 'Model AA' shares as a means of raising finance - Edexcel - A-Level Business - Question 2 - 2018 - Paper 2
Question 2
Assess Toyota's decision to issue 'Model AA' shares as a means of raising finance. Toyota shareholders last week approved the issue of 50 million new shares – and n... show full transcript
Worked Solution & Example Answer:Assess Toyota's decision to issue 'Model AA' shares as a means of raising finance - Edexcel - A-Level Business - Question 2 - 2018 - Paper 2
Step 1
Reasons for issuing AA shares (a long-term approach)
Answer
Issuing 'Model AA' shares provides Toyota's management with the opportunity to focus on long-term developments without immediate pressure from shareholders.
The required holding period of five years allows managers sufficient time to innovate and invest in research and development, thereby enhancing future profitability. By guaranteeing dividends that increase annually, Toyota attracts investors interested in sustained returns.
Step 2
Possible counterbalance
Answer
Conversely, the long holding period may frustrate some investors seeking quicker returns. As demand fluctuates, shareholders might pressure management to react promptly to market changes. Potential resistance from shareholders who wish to divest earlier could also arise, complicating Toyota's objectives.
Step 3
Potential judgement on strategy
Answer
Considering the competitive automotive market, Toyota must balance short-term shareholder satisfaction with long-term strategy. While 'Model AA' shares mitigate immediate financial pressures, management must keep pace with industry shifts to maintain investor confidence. Ultimately, the success of this strategy hinges on the willingness of shareholders to adopt a long-term perspective.