Georgia Atlantic Case

Georgia Atlantic Company

Dividend Policy

FIN690

By

Alfredo Carrizales

And

Margaret Bednarowicz

Question 1

If we analyze Georgia Atlantic’s annual growth rate in EPS we can see that Georgia Atlantic’s growth rate is relatively low compared to the industry average. Furthermore we can see from the first table and our calculations that Georgia Atlantic’s P/E ratio is also lower in all the years as compared to the industry and the M/B ratio is also relatively low compared to the industry. This can be because Georgia Atlantic is operating in a relatively mature market, therefore the possibility for growth is very low, and that is why we consider Georgia Atlantic as a low growth company. For low growth companies it would normal to have a low P/E ratio and a low B/M ratio because most of the company’s value comes from their current operations and assets. Because Georgia Atlantic is a low growth company they should in fact pay out dividend as is the case for low growth firms. Since a mature market will not have many new investment opportunities, unless there is a new breakthrough in technology that would be able to revamp the industry, or unless it ventures into new markets. However, this is not the case for Georgia Atlantic.

Question 2

For Georgia Atlantic, it would be best to have an announced dividend policy because the biggest advantage of having an announced dividend policy is that this will reduce the investors (stockholders) uncertainty, and reductions in uncertainty are generally associated with lower capital costs and higher stock prices, other things being equal. The disadvantage is that such a policy might decrease corporate flexibility. However, the announced policy would possible include elements of flexibility. On balance, it would appear desirable for directors to announce their policies.

Question 3

Most firms will generally pay out some of the net Income as dividends and reinvest, or retain the rest. The payout ratio is the percent of net...