estimation error when financing costs change substantially. The financing costs associated with additional funds needed create "feedback," requiring a firm to borrow more than the original additional funds needed in order to meet the interest and dividend obligations of the amount borrowed. Original additional funds needed is calculated from a pro forma statement as a firm's total asset projections minus initially projected liabilities and
Words: 2832 - Pages: 12
EFB 360 Finance Capstone Case Study 2 Distribution to shareholder: Dividends and Repurchase The case of Gainesboro Machine Tool Corporation Abstract 1 Introduction 1 Dividend Irrelevance Proposition 1 Financial Flexibility 2 Agency Theory 2 Signalling Theory 3 Clientele Effects 4 The Optimal Payout Ratio 5 Share Repurchase 7 Conclusion 8 References 10 Appendices 13 Appendix 1: Detailed Calculation of Unused Debt Capacity (0%, 20%, 40% and residual payout) 13 Appendix
Words: 2910 - Pages: 12
D U M To: From: Date: ------------------------------------------------- Re: Changes to Dividend Policy at Linear Technology ------------------------------------------------- The purpose of this memo is to provide a recommendation to Paul Coghlan, CFO of Linear Technology, regarding adjustments to the company’s dividend policy. Linear Technology’s current dividend policy yields a higher than average payout ratio and sets them apart from other technology firms. The firm’s
Words: 1309 - Pages: 6
leveraged recapitalization through a dividend or major share repurchase. Through her active investor strategy, Blanca is trying to increase the value of investment in Wrigley. Blanca’s objective would be to create ultimately new value in Wm. Wrigley Jr. corporation and thus increase the value of Aurora Borealis’ initial investment in the firm. As a result of using the three billion to complete a significant share repurchase or by increasing the dividend to stockholders; Finance theory can be
Words: 1213 - Pages: 5
Technology (LT) is like many firms where it used a combination of dividend payments and share / stock repurchases to distribute cash to its shareholders. With a cash dividend, cash is paid directly to shareholders while, with a stock repurchase, a firm uses its cash to buy back its own shares from the market which in turn reduces the number of outstanding shares (Titman and Keown et al., 2011). LT wanted to be able to attract different dividend clienteles of investors which have the both income goals and
Words: 4560 - Pages: 19
Sudip Datta and Mai Iskandar-Datta, Wayne State Reappearing Dividends Brandon Julio and David Ikenberry, University of Illinois Making Capitalism Work for Everyone Raghuram Rajan and Luigi Zingales, University of Chicago University, and Kartik Raman, Bentley College Reappearing Dividends by Brandon Julio and David L. Ikenberry, University of Illinois at Urbana-Champaign * I n his 1976 classic called “The Dividend Puzzle,” Fischer Black wrote that there was no convincing explanation
Words: 10222 - Pages: 41
Value Enhancement Plan The feature of having both cash and new share options makes the VEP have its strengths and makes an excellence choice for Ford Motor Company. The cash option solves the problem of Ford having massive amounts of extra cash. Since Ford has no profitable activities for the extensive amounts of cash, returning the excess cash to shareholders allows them to make profitable investments. Different from a cash dividend, the returned cash will be taxed as capital gain and therefore
Words: 873 - Pages: 4
additional new common shares or a combination of cash and new share. Based on the following analysis, Ford should go ahead with Value Enhancement Plan. Characteristic of VEP The Value Enhancement Plan has the feature of stock split and share repurchase. Exchanging existing shares for new shares on a oneforone basis, shareholders are also offered the option to reinvest $20 to receive additional new Ford common shares. In this sense, share price would decrease while the number of shares outstanding is going to increase
Words: 850 - Pages: 4
companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees. The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all
Words: 5707 - Pages: 23
the value of the firm, and sometimes as the value of the operations.) E1.2. Calculating Value Per Share Rearranging the value relations, Equity Value = Enterprise Value – Value of Debt Equity Value = $2,700 - $900 million = $1,800 Value per share on 900 million shares = $1,800/900 = $2.00 E1.3 Buy or Sell? Value = $850 + $675 = $1,525 million Value per share = $1,525/25 = $61 Market price = $45 Therefore, BUY! Applications E1.4. Finding
Words: 24977 - Pages: 100
