Gainesboro Mt
GAINESBORO MACHINE TOOLS CORPORATION
Overview
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
Critical Issues
Below are listed the various issues that Gainesboro is currently facing. Issues are listed at random and in no order of importance.
1. Investor Relations:
2. Dividend Policy: Gainesboro needs to choose a adequate policy with regards to its dividend policy that does not jeopardize its ability to generate future earnings or affect its relationship with its large dividend reliant shareholder base.
3. Capital Structure: Debt and equity
Dividend Policy
One of the misconceptions at Gainesboro is the belief that only by paying dividends will the company be able to make a strong public gesture that the company has ¡§turned¡¨ the corner and is on track to levels of growth and profitability. Typically, growth companies do not pay dividends as earnings are usually reinvested into the company to foster growth and fund various projects and operating assets. While Gainesboro is not a standard growth company, its management and recent activity would seem to suggest that the firm is poised to become more innovative, strongly suggesting growth with new products.
The case gives three dividend alternatives for Gainesboro which are analyzed on the basis of disadvantages and advantages
Overview
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
Critical Issues
Below are listed the various issues that Gainesboro is currently facing. Issues are listed at random and in no order of importance.
1. Investor Relations:
2. Dividend Policy: Gainesboro needs to choose a adequate policy with regards to its dividend policy that does not jeopardize its ability to generate future earnings or affect its relationship with its large dividend reliant shareholder base.
3. Capital Structure: Debt and equity
Dividend Policy
One of the misconceptions at Gainesboro is the belief that only by paying dividends will the company be able to make a strong public gesture that the company has ¡§turned¡¨ the corner and is on track to levels of growth and profitability. Typically, growth companies do not pay dividends as earnings are usually reinvested into the company to foster growth and fund various projects and operating assets. While Gainesboro is not a standard growth company, its management and recent activity would seem to suggest that the firm is poised to become more innovative, strongly suggesting growth with new products.
The case gives three dividend alternatives for Gainesboro which are analyzed on the basis of disadvantages and advantages