Electroninc Timing Inc
Tom believes the company should use the extra cash to pay a special onetime dividend. How will this proposal affect stock price? How will affect the value of the company?
The goal of every corporation with dividends is to increase the stockholders wealth. The proposal to issue a special dividend based on the $30 million after tax sale is could be viewed by Stockholders positively, as they would experience a higher return on their investment. The only issue the stockholder might have would be the taxes on the additional dividend distributed. Especially for those that own 25% of the shares if the entire $30 million is distributed.
It is also important to note that offering extra cash dividends to stockholders does not necessarily improve the company’s stock performance. In other words the one time dividend will not affect stock prices. Stock value would drop by the amount of dividend declared as we have seen in previous problems. The wealth of stockholders would probably be the same since the price of stock will decline by the amount of dividend payment assuming we do not take the taxes into account. If we take taxes into account as mentioned above the wealth of stockholder would decline in proportion to the amount paid in taxes.
Jessica believes that the company should use the extra cash to pay off debt and upgrade and expand its existing manufacturing capabilities. How would Jessica’s proposal affect the company?
When companies have zero debt it is usually recommended that they incur some debt as it enables them to be able to invest additional resources in the company to grow it. This of course is not the case with Electronic Timing Inc., as they already have debt that they are wanting to pay off. When a company has zero debt it is usually beneficial for it to incur debt because the debt can be used to grow the company. If we Electronic Timing goes along with the plan recommended by Jessica; they would reduce the amount of cash outflow that is being made to
The goal of every corporation with dividends is to increase the stockholders wealth. The proposal to issue a special dividend based on the $30 million after tax sale is could be viewed by Stockholders positively, as they would experience a higher return on their investment. The only issue the stockholder might have would be the taxes on the additional dividend distributed. Especially for those that own 25% of the shares if the entire $30 million is distributed.
It is also important to note that offering extra cash dividends to stockholders does not necessarily improve the company’s stock performance. In other words the one time dividend will not affect stock prices. Stock value would drop by the amount of dividend declared as we have seen in previous problems. The wealth of stockholders would probably be the same since the price of stock will decline by the amount of dividend payment assuming we do not take the taxes into account. If we take taxes into account as mentioned above the wealth of stockholder would decline in proportion to the amount paid in taxes.
Jessica believes that the company should use the extra cash to pay off debt and upgrade and expand its existing manufacturing capabilities. How would Jessica’s proposal affect the company?
When companies have zero debt it is usually recommended that they incur some debt as it enables them to be able to invest additional resources in the company to grow it. This of course is not the case with Electronic Timing Inc., as they already have debt that they are wanting to pay off. When a company has zero debt it is usually beneficial for it to incur debt because the debt can be used to grow the company. If we Electronic Timing goes along with the plan recommended by Jessica; they would reduce the amount of cash outflow that is being made to