The purpose of this assignment is to explain core concepts related to cash distributions and capital structure.
Read the Chapter 14 Mini Case in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a and b. Include as many of the ideas and highlighter terms from throughout the chapter as possible Integrated Waveguide Technologies (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. IWT’s technology, although highly advanced, is relatively inexpensive to implement, and its patented manufacturing techniques require little capital as compared 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 theexplosion 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. (1) What is meant by the term “distribution policy”? How has the mix of dividend payouts and stock repurchases changed over time?
(2) The terms “irrelevance,” “dividend preference” (or “bird-in-the-hand”), and “tax effect” have been used to describe three major theories regarding the way dividend payouts affect a firm’s value. Explain these terms, and briefly describe each theory.
(3) What do the three theories indicate regarding the actions management should take with respect to dividend payouts?
(4) What results have empirical studies of the dividend theories produced? How does all this affect what we can tell managers about dividend payouts?
b. Discuss the effects on distribution policy consistent with: (1) the signaling hypothesis (also called the information content hypothesis) and (2) the clientele effect.
Create a 5-10 slide PowerPoint presentation in which you summarize your answers from the mini case in Part A. Be sure to include graphs, charts, and trends as appropriate. Include notes for narrating and explaining to instructor during collaborative live class video conference on final due date and submission. Allow for 1.The content is written clearly and concisely. Ideas universally progress and relate to each other. The project includes motivating questions and advanced organizers. The project gives the audience a clear sense of the main idea.
2.Speaker notes are extremely thorough and expertly crafted.
3.The layout is visually pleasing and contributes to the overall message with appropriate use of headings, subheadings, and white space. Text is appropriate in length for the target audience and to the point. The background and colors enhance the readability of the text.
4.The writer uses a variety of sentence constructions, figures of speech, and word choice in distinctive and creative ways that are appropriate to purpose, discipline, and scope.
5.Writer is clearly in command of standard, written, academic English.