Financial Management

Financial Management

Financial Management

Integrated Waveguide Technologies, Inc. (IWT) is a 6-year old company founded by Hunt Jackson and David Smithfield to exploit metamaterial plasmonic technology to develop and manufacture miniature microwave frequency directional transmitters and receivers for use in mobile Internet and communications applications. The technology, although highly-advanced, is relatively inexpensive to implement and their patented manufacturing techniques require little capital in comparison to many electronics fabrication ventures. Because of the low capital requirement, Jackson and Smithfield have been able to avoid issuing new stock and thus own all of the shares. Because of the explosion in demand for its mobile Internet applications, IWT must now access outside equity capital to fund its growth and Jackson and Smithfield have decided to take the company public. Until now, Jackson and Smithfield have paid themselves reasonable salaries but routinely reinvested all after-tax earnings in the firm, so dividend policy has not been an issue. However, before talking with potential outside investors, they must decide on a dividend policy.

Your new boss at the consulting firm Flick and Associates, which has been retained to help IWT prepare for its public offering, has asked you to make a presentation to Jackson and Smithfield in which you review the theory of dividend policy and discuss the following issues.
a. What is meant by the term “distribution policy”? How have dividend payouts versus stock repurchases changed over time? Answer: See Chapter 14 Mini Case Show

b. discuss the effects on distribution policy consistent with (1) the signaling hypothesis (also called the information content hypothesis) and (2) the clientele effects.

c. What are the advantages and disadvantages of the residual policy? (Hint: Don’t neglect signaling and clientele effects. Answer: See Chapter 14 Mini Case Show
d. What are stock repurchases? Discuss the advantages and disadvantages of a firm’s repurchasing its own shares. Answer: See Chapter 14 Mini Case Show

Book

Title:Financial Management: Theory and Practice, 15 th edition

Author: Brigham and Ehrhardt

Publisher: Thomson-Southwestern

ISBN: 978-1-111-97220-2

Solution Preview

A distribution policy is a marketing policy which outlines the way information concerning products get distributed within the organization up to the final consumer (Brigham, E. F., & Ehrhardt, M. C. 2017). Within the organization, products and data have to be available for the personnel who require them while still managing risks such as leakage outside the organization…………………………….

APA

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