Explain what happens to Gainesboro’s financing need also unused debt capacity
Business Management
Q. 1. In theory, to fund an increased dividend payout or a stock buyback, a organization might invest less, borrow more, or issue more stock. Which of those three elements is Gainesboro’s management willing to vary; also which elements remain fixed as a matter of the industry’s policy?
2. Illustrate what happens to Gainesboro’s financing need also unused debt capacity if:
a. no dividends are paid?
b. a 20% payout is pursued?
c. a 40% payout is pursued?
d. a residual payout policy is pursued?
Note which case Exhibit 8 presents an estimate of the amount of borrowing needed. Suppose which maximum debt capacity is, as a matter of policy, 40% of the book value of equity.
3. Explain how might Gainesboro’s various providers of capital, such as its stockholders also creditors, react if Gainesboro declares a dividend in 2005? Illustrate what are the arguments for also against the zero payout, 40% payout, also residual payout policies? Illustrate what should Ashley Swenson recommend to the board of directors with regard to the long-term dividend payout policy for Gainesboro Machine Tools Corporation?
4. Explain how might various providers of capital, such as stockholders also creditors, react if Gainesboro repurchased its shares? Should Gainesboro do so?
5. Should Swenson recommend the corporate-image advertising campaign also corporate name change to the Gainesboro’s directors? Do the advertising also name change have any bearing on the dividend policy or the stock repurchase policy which you propose?
