Massey-Fergusion Case Study Essay

1. Net sales for Massey-Ferguson actually increased between 1979 and 1980. Despite this, netincome and income from chronic operations both pretermitped sharply in 1980. Which itemon the income statement was most responsible for this drop in income?The item on the income statement most responsible for this drop in income was the rise in costof goods sold due to currency risk exposure. The pound appreciated strongly against currenciesthat Massey sold its products. especially since engine production was highly concentrated in theUnited Kingdom. Cost of goods sold rose from $238.18 billion to $2568.5 million from 1979 to1980 because of the rise in strength of the British pound.2. Why would the Canadian government have both interest in helping Massey-Fergusonrefinance its debt?A bulk of Masseys operations were centralized in Canada which meant that a large portionof Canada was employed by Massey (6,700 in Ontario) and without the help ofthe Canadiangovernment these jobs would be expir ation and they would need to pay out unemployment. Also,Argus Corporation, a stock holding company in Canada, had a 16.5% s comeback in Massey and was aconservative supporter who wanted more support for Massey.3. Why would it be difficult for Massey-Ferguson to conduct an virtue issue to pay down itsdebt?It would be difficult for Massey to conduct an equity issue to pay down its debt because of howmuch debt Massey accrued and their consistent inability to pay it. Also, Argus refused to takea block of preferred share issues Massey intended to issue in 1980. Since Argus was Masseyslargest shareholder, if they lacked authorization in Massey it shows a lot. Massey also fell behindwith dividends to both preferred and common shares due to covenants on their outstanding loans.So equity capital was out of the question.