Buffet

•(When) asked if the company planned to start paying a dividend or initiate a stock buyback program, "At this time, we have no plans to do either. We don't think it's our job to manage our shareholders. It's our job as the management team to manage the company, to manage it through when the stock price is going up and to manage it when the stock price is going down.” Steven Jobs (Hillis, “Apple Plans no Dividend or buyback”)

“Dividends are real money. That's the hallmark of a blue chip stock. If a company doesn't pay a dividend, it's a speculation.” Geraldine Weiss (Sullivan, “Dividend Stocks Pay Off”)

Applied Business Finance UNC Charlotte – MBAD 6154

Gainesboro Case Analysis

Applied Business Finance          UNC Charlotte  MBAD 6154

GAINESBORO MACHINE TOOLS

PAYOUT POLICY FOR A NEW IDENTITY

Clay Fowler Jabbar Jamison

…

AGENDA

• Gainesboro • Their dilemma • Payout policy • Dividends • Relevant theories • Repurchases • Signaling • Payout policy in the 21st century • Recommendation • Forecasts and supporting evidence • Suggested Readings

Applied Business Finance UNC Charlotte – MBAD 6154

Gainesboro Case Analysis

…/Gainesboro_and_their_dilemma

GAINESBORO

• Conventional industry: Machine tools manufacturing • Historically strong earnings and regular dividends • 25% of revenue • New industry: CAD/CAM software industry • Expensive restructuring • Enormous growth potential, domestic and international

Applied Business Finance UNC Charlotte – MBAD 6154

Gainesboro Case Analysis

…/Gainesboro_and_their_dilemma /Income_statements

GAINESBORO MACHINE TOOLS CORP. Consolidated Income Statements (in thousands of dollars, except per-share data)

Shares Outstanding

18,600,000

For the Years Ended December 31, 2002 2003 2004

Projected 2005

Net sales Cost of sales Gross profit

$

858,263 540,747 317,516

$

815,979 501,458 314,522

$

756,638 498,879 257,759

$

870,000 549,750 320,250

Research &...