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Rockboro

The document discusses Rockboro Machine Tools Corporation's options for a long-term dividend payout policy. It analyzes the arguments for a zero-payout, 40%-payout, and residual-payout policy. It recommends adopting a residual payout policy that would pay dividends after funding all positive net present value projects. This signals to investors that funds will be used to generate returns while still providing payouts. It also recommends a corporate name change and advertising campaign to align with the new strategic vision, but notes this could put strain on earnings and affect dividends.

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114 views

Rockboro

The document discusses Rockboro Machine Tools Corporation's options for a long-term dividend payout policy. It analyzes the arguments for a zero-payout, 40%-payout, and residual-payout policy. It recommends adopting a residual payout policy that would pay dividends after funding all positive net present value projects. This signals to investors that funds will be used to generate returns while still providing payouts. It also recommends a corporate name change and advertising campaign to align with the new strategic vision, but notes this could put strain on earnings and affect dividends.

Uploaded by

m
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Rockboro

3. What are the arguments for and against the zero-payout, 40%-payout, and residual-payout policies?

Zero High Dividend Residual


Signals that the company
belongs in a high-growth, high- Rockboro’s investment banker
Declares a dividend after the
tech segment is advising this payout policy
Shareholders would expect company has funded all
A high dividend policy signals
strong capital appreciation and positive NPV projects
to the market that the
This method would
a lower dividend payout company has conquered its
potentially gain the trust of
issues and is looking forward to
shareholders that the company
a brighter future
will use the funds to generate
High dividend policies are
returns that would eventually
usually for mature companies,
flow back to the investors
and if Rockboro wants to
Dividends are not always
reestablish its image of being in
promised, which could hurt the
the high-tech segment, a high
stock price when dividends are
dividend policy would signal
not paid out
otherwise
3. What should Sara Larson recommend to the board of directors with regard to a long-term dividend-payout
policy for Rockboro Machine Tools Corporation?

Management has set the goal of substantially improving profits from its new AIW system generating three quarters of sales

Having a residual policy in that case would signal to the market that a company is heading towards a new direction funding its
projects towards success and capital appreciation
 Previously, investors have become accustomed to Rockboro dividend payouts, cutting them off completely after issuing the
statement of the promise of paying them out in the future might have a negative implication that the company is pushing away
payouts due to financial distress, even if it wasn't the case
Therefore, the residual policy is the perfect inbetween, it attracts new investors of the renewed brand image and potential
capital appreciation of the company while attaining the current investors with paying out any residual income back to them
This method as previously mentioned is subject to the potential downside on the stock price due to the possibility of having no
dividends payouts in particular years for the sake of investing in the expansion and growth of the company
4. Should Larson recommend the corporate-image advertising campaign and corporate name change to Rockboro’s
directors? Do the advertising and name change have any bearing on the dividend policy or the stock-repurchase
policy that you propose?

Larson should recommend the rebranded name to the board. because it is aligned with the goal of establishing a new image to
stakeholders
This rebranding signals the new vision of the company on heading towards high-growth and expansion with its new AIW system
and its new developing projects. Having both the name change and stock repurchase signals to investors that the company
believes in the new established vision which gains the trust of investors and will have a positive implication to the stock price
Having marketing campaigns and share repurchases could put a strain on net earning that will affect dividend payouts

 Therefore, might have a negative implication to the market for investors expecting to receive dividends

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