How could Ford’s expansion of its Avon Lake plant to manufacture electric commercial vans impact its balance sheet, cash flows, and profitability?

Ford Motor Company (NYSE: F) is moving ahead with a $1.5 billion expansion of its Ohio Assembly Plant in Avon Lake to start producing a new electric commercial van by 2026. This investment is part of Ford’s strategy to shift towards more electric and hybrid vehicles that are cost-efficient and offer better value to customers. As part of the expansion, Ford will incur various costs, such as construction expenses to expand the physical plant, new machinery purchases, and installation costs for specialized electric vehicle production lines, while it continues to pay the general and administrative costs for the Ford Motor Company’s CEO and support staff and the costs of operating the Ohio Assembly Plant as it continues to make other vehicle models for Ford.

View a quick tutorial video about property, plant and equipment at this link and then answer the following questions.

Discussion Questions:

1. What costs associated with the plant expansion will be capitalized as part of Ford’s property, plant, and equipment (PP&E)?
2. How does the capitalization of costs like machinery and building improvements differ from expensing them immediately?
3. How could Ford’s investment in the Avon Lake plant expansion impact its balance sheet in the year of the plant expansion? Discuss specific accounts that would be affected.
4. What depreciation methods might Ford use to allocate the cost of new machinery and plant upgrades over time?
5. How might the expansion impact Ford’s cash flow in the short-term versus the long-term?
6. How could Ford’s investment in the Avon Lake plant expansion impact its overall profitability in future financial periods?