Electronic Case (Corporate Finance) Essay

1. Tom believes the high society should use the extra bullion to pay a special one-time dividend. How lead this proposal act the billet price? How exit it affect the value of the companion? Electronic Timing, Inc. (ETI) needfully to be c beful on how it dispenses the extra hard cash as a dividend. Issuing the extra cash as a dividend would mean that the coverholders together with will probably drop by the same tote up because of the deportation of wealth from the company to the shareholders individually. Hence, the economic value of the company will alike decrease.2. Jessica believes that the company should use the extra cash to pay debt and upgrade and prosper it existing manufacturing capability. How would Jessicas proposals affect the company? Jessicas proposal will support an expansionary indemnity for the company which can result to a higher(prenominal) suppuration rate for ETI. As to the companys dividend policy, not government issue the extra cash as a divid end signals to the market place that there are calm better and more efficient uses of the cash than using it for dividends.3. Nolan is in favor of a share repurchase. He argues will increase the companys P/E ratio, event on assets, and return on equity. Are his arguments correct? How will a share repurchase affect the value of the company? A share repurchase if through correctly should be equivalent to the issuance of a cash dividend with the same amount as regards to effects on shareholders wealth. The way the share repurchases should be done in a way that it does not diminish or pretend shareholder wealth. Hence, Nolans argument that the companys return and assets and return on equity will increase is not correct. However, the P/E ratio might go upwards for a time until the market corrects it.4. another(prenominal) option discussed by Tom, Jessica and Nolan would be to begin a ceaseless dividend payment to shareholders. How would you approximate this proposal? A plan to iss ue a regular dividend to shareholders is a start in establishing a dividend payout policy. A dividend policy signals to the market that the company is making a commitment to its shareholders and hence the company strategies will have to be aligned with that commitment.Therefore I would evaluate the proposal as regards the companys ability to stick to it. For example, it adopts a stable dividend policy will it be able to have cash to honor such policy year on, year off? Another factor would be does a regular dividend matter to ETIs shareholders? Or do they prefer a different method of transferring wealth to them by from a cash dividend?5. One way to value a share of stock is the dividend growth, or growing perpetuity, model. Consider the following The dividend payout ratio is 1 minus b, where b is the belongings or plowback ratio. So, the dividend next year will be the earnings next year, E1, times 1 minus the retention ratio. The most commonly used equation to calculate the susta inable growth rate is the return on equity times the retention ratio. alter these relationships into the dividend growth model, we get the following equation to calculate the price of a share of stock today What are the implications of this result in foothold of whether the company should pay a dividend or upgrade and expand its manufacturing capability?Explain. The substituted dividend growth model is Dt=Dt-1(1+rb). This equation implies that the future dividends of the company are instanter related to the amount of earnings it retains and the rate of return if makes from its investments. However, in frame to attain the companys targeted rate of return it also require to retain more of its earnings in the company for upgrading or expanding its manufacturing ready rather than using it for cash dividends.In the expansionary phase, the company has to make mint offs lower dividends for higher growth.6. Does the question of whether the company should pay a dividend look on whet her the company is organized as a corporation or an LLC? No, an LLC can distribute earnings to its owners however that distribution is not called a dividend, but rather distribution of cash or property to the partners. It is still a dividend in a different name.