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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. The new 'Model AA' shares must be held for five years and cannot be sold earlier.... 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 allows Toyota's management more time to innovate and develop new vehicles without the pressure of immediate returns. This aligns with the company's long-term goals of investing in future technologies, such as R&D and automation in manufacturing, crucial for staying competitive in the dynamic automotive market. The guaranteed increasing dividends provide an added incentive for shareholders, thereby attracting long-term investment.
Step 2
Possible counterbalance to the long-term strategy
Answer
Some shareholders may have differing views on this approach, preferring immediate returns instead of long-term investments. This could lead to pressure on management to prioritize short-term profits, which might not align with the sustainable growth strategy. Stakeholders might also expect quicker responses to shifts in consumer demand, particularly regarding hybrid and electric vehicles, and criticize the company if they perceive a slow reaction.
Step 3
Potential judgment on the decision
Answer
In a competitive and ever-evolving market, Toyota's ability to adapt quickly to consumer preferences is crucial. While long-term investments in R&D will pay off, the need to respond swiftly to market demands cannot be understated. If shareholders support this strategy and display patience, the use of 'Model AA' shares may strengthen Toyota's market position, ultimately benefiting all parties involved in the long run.