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Gainesboro Machine Tools Corporation

Gainesboro Machine Tools Corporation. WHICH DIVIDEND POLICY IS BETTER?. 102363009 邱元亨 102363065 蔡博先 102363088 莊皓鈞 102363040 張筱菁 102363089 王奕云. Agenda. Industry Analysis. B2B company Need capital injection in product development

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Gainesboro Machine Tools Corporation

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  1. Gainesboro Machine Tools Corporation WHICH DIVIDEND POLICYIS BETTER? 102363009 邱元亨 102363065 蔡博先 102363088 莊皓鈞 102363040 張筱菁 102363089 王奕云

  2. Agenda

  3. Industry Analysis • B2B company • Need capital injection in product development • Others in CAD/CAM industry usually don’t pay dividend • Companies in this industry focusing on rejuvenating techs and facilities

  4. Company analysis • Gainesboro is going to gain a great deal of long-term debt • May well invest in boosting manufacturing capacity • We don’t recommend name changing • B2B company needs slight consumer awareness • Buyers know what they are doing with CAD/CAM Co. • The money shall be invested on more meaningful domain(ex:RD)

  5. Dividend policy

  6. I. 40 percent payout or a dividend of around $0.20 a share • The payout percentage is pretty close comparing to the similar industries, like electrical-industrial-equipment and machine-tool. • However, after dividend cash amounts are negative until year 2011. (Exhibit 8) • it is inappropriate to borrow money to feed the monetary gap.

  7. II. Residual-dividend payout • Reasonable to pay dividend only if all the projects offering positive net present values. • We tell from the Exhibit 1 showing the fluctuation in net income, and it represents that the dividend payout is unsteady. • A high-growth technology corporation needs much money to expand and invest the new research.

  8. III. Zero-dividend payment • High-growth and high-technology firmstend to adopt this policy. • Firms that requires huge cash at hand to invest for higher return. • The market expects strong capital appreciation.

  9. We Suggest: Zero Dividend Payout

  10. Reason 1: • The policy is in line with the firm’s strategic emphasis on advanced technologies and CAD/CAM. >Supporting Material: Exhibit 2, the projected 2005 property, plant equipment will increase from 175,355 to 205,458.

  11. Reason 2: • Meeting the stock holders interest. >Supporting Material: Exhibit 4, long-term individual investors have dropped from 37% to 26%; short term/trading-oriented individual investors have grown from 5% to 13%.

  12. Reason 3: • Continuing borrowing will be needed if adopt dividend payout. >Supporting Material: Exhibit 8, if continuing giving dividend, especially keeping the 40% payout ratio, the company will not have excess cash until 2011.

  13. Repurchases

  14. Why companies want to take stocks repurchases? • Undervaluation • Capital Structure Adjustment • Prevention of share dilution from employee stock option • Take-over Defense

  15. Motivation for Repurchases • Signaling Blooming Future • Increase EPS

  16. Our Decision We do not choose to buy back stock. • For signaling confidence in their company? • For increasing EPS? Building an entry obstacles to competitors is the most important thing they should do. And this decision should depend on the different industries.

  17. THANK YOU FOR LISTENING!

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