
Rockboro Machine Tools Corporation
Eades, Kenneth M.
Rockboro Machine Tools Corporation
F-1765 | Published December 14, 2016 | 15 pages. Case
Collection: Darden School of Business
Product Details
In mid-September 2015, Sara Larson, the chief financial officer of this large CAD/CAM (computer-aided design and manufacturing) equipment manufacturer must decide whether to pay out dividends to the firm’s shareholders, or repurchase stock. If Larson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves as an omnibus review of the many practical aspects of the dividend and share buyback decisions, including (1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions. This case can follow a treatment of the Miller–Modigliani dividend-irrelevance theorem and serves to highlight practical considerations in setting dividend policy.
Understanding the link between the theory and practice of corporate dividend policy; the impact of dividend policy on the financing needs of a company; the tradeoffs between dividends and share repurchases
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