Examining Financing Options and Dividend Payments for C&C Yachts

Analysis of Two Financing Options

The Board of Directors is also considering paying out dividends of $0.20 after expansion. Previous tothe expansion the C&C Yachts has not paid dividends, in order to fund the fast growth of the company. They will likely ask for your input in this matter.

Your Task – answer each question and submit your response with spreadsheet and any othersupporting material to the classroom; you may use bulleted lists or tables, but be sure to explainyour reasoning and decisions.

a) Examine the two financing options by analyzing the impact on net income, earnings per commonshare, ROA, ROE, debt to equity ratios and other ratios that you consider pertinent

b) Using the above information, which option will you bring as your recommendation to the meeting?Why? What other non-financial issues must you consider in your financing decision whenevaluating the two options?

c) What issues may you need to examine if the firm is considering paying out dividends of $0.20 percommon share after expansion? 

d) Forecast the depreciation expense of the machine for the first two years that the plant is inoperation using both depreciation methods. Does the depreciation method have a materialinfluence over the net income? Explain which method would you recommend in the abovescenario?

e) Identify the factors that are considered in classifying the new machine expenditure as a capital oroperating expenditure. Are there instances where it may be difficult to classify an expenditureas one or the other (e.g., the purchase of a wastebasket that has a useful life of 5 years and cost$10)? What basis would be used in a decision?