Professional Documents
Culture Documents
Gainesboro Corporation was founded in 1923 in Concord. In early days, it had designed and
manufactured a number of machinery parts, including metal press, dies, and molds. By 1975, the
company had developed as an innovative producer of industrial machinery and machine tools.
During 1980s, the firm entered in the industry of computer-aided design (CAD) and computeraided manufacturing (CAM), and later on became an industrial leader. However, aggressive entry
of large foreign firm dampened sales throughout 1990s. From 1998 to 2004 Gainesboros revenues
decreased from $911 million to $757 million. The company underwent two restructuring
initiatives in 2002 and 2004 with a total cost of $202 million. In the first few years of 2000s, the
companys restructurings had improved efficiency and development of Artificial Workforce
system. With creation of applications for the trucking, automobile-parts and airline industries,
Gainesboro is expected to have good growth in future.
those projects, proponents of this argument insisted that such an approach would ensure that all
projects were being properly funded to ensure future growth and dividend payout was based on
the sufficient supports to companys long-term development. Rather than try hard to maintain a
predetermined dividend payout, the firm had less pressure on cash flow and future growth than
other options.
not very interested in increasing the company`s debt as they prefer to use its own resources, even
though it was not efficient, this attitude was still strong at management level. It would be in the
company`s interest to increase the amount of loan debts because it was cheaper than equity debts.
The traditional views supported this in lower levels of the debt and equity ratio. In this particular
case though, this might not be true because the usage of the loan to pay shareholders would be
considered as a risky activity by the bank and as a result it would ask for a higher interest rate
5. Repurchase of shares Shareholders would prefer a repurchase of shares as they would enjoy
share prices increase in value in this way if they held it during this period or they can gain the
return coming from the positive difference in buying their shares cheap and selling them high.
6. Corporate image advertising For the objective of corporate image advertising, paying
dividend will increase the brand awareness and might increase share price in the short term.
However, there were not empirical evidence to prove this high cost assumption.
Recommendation to Swenson
Considering creating a competitive advantage and sustainable
companys vision, implementing the zero-dividend payout approach is our recommendation to
Ashley Swenson as it allows her to offer the company to gain the greatest number of financial
goals. First, a zero-dividend payout solution will maximize excess cash allowing the company to
pursue more aggressive marketing objectives. Secondly, cash saved for technological projects will
give the company an ability to gain future expansion and investment. Thirdly, it provides the
flexibility for the company to minimize interest expense and dividend expense which could
negatively impact its net income goals. The one goal that this strategy does not fulfill is Stephen
Gaines idea of returning to a steady dividend payout as soon as possible. Many investors believe a
strong dividend is an indicator of a strong company even though the management board is likely
to support this approach. Swenson can convince the opponents that this is a must decision for a hitech company with a growing trend when we analyze all listed companies which have similar
developing process in their history.