Questions about Integrated Waveguide Technologies in Chapter 15
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
the first question
Hunt Jackson and David Smithfield founded Integrated Waveguide Technologies (IWT) six years ago with the goal of using metamaterial plasmonic technology to develop and manufacture miniature microwave frequency directional transmitters and receivers for use in mobile Internet and communications applications. Compared to many electronics fabrication endeavors, IWT’s technology is reasonably affordable to deploy, and its proprietary manufacturing procedures require little capital. Jackson and Smithfield have been able to avoid issuing additional stock due to the low capital requirement, and consequently own all of the shares. IWT must now access outside equity funds to fuel its expansion due to the rise in demand for its mobile Internet apps, and Jackson and Smithfield have chosen to take the firm public. Until now, Jackson and Smithfield have paid themselves respectable salaries while frequently reinvesting all after-tax gains back into the company, so dividend policy has not been an issue. They must, however, settle on a dividend policy before speaking with potential outside investors. Your new supervisor at Flick and Associates, the consulting firm hired to help IWT prepare for its IPO, has requested you to give a presentation to Jackson and Smithfield in which you study dividend policy theory and explain the following points.
a.
(1) What does it mean to have a “distribution policy”? What has changed in the mix of dividends and stock repurchases over time?
(2) The phrases “irrelevance,” “dividend preference” (also known as “bird-in-the-hand”), and “tax effect” have all been used to characterize three key hypotheses on how dividend payouts affect a company’s value. Explain these terminology and give a brief overview of each theory.
(3) What do the three theories say about the activities that management should take in terms of dividend payouts?
(4) What conclusions have been drawn from empirical research of dividend theories? What impact does this have on the information we can provide to management about dividend payouts?b. Discuss the impact of the signaling theory (also known as the information content hypothesis) and the clientele effect on distribution policy.
c. (1) Assume IWT completed its initial public offering (IPO) and has a capital budget of $112.5 million for the following year. You’ve decided that the company’s current capital structure (80% stock, 20% debt) is optimal, and its net income is expected to be $140 million. Determine IWT’s total dollar distribution using the residual distribution technique. Assume the distribution is in the form of a dividend for the time being. Assume IWT has 100 million outstanding shares of stock. What is the dividend payout ratio expected in the future? What is the expected per-share dividend? What would happen if net income dropped to $90 million? What would happen to the payout ratio and DPS? Is it possible to raise the amount to $160 million?
(2) How would a shift in investment opportunities influence the payout ratio under the residual distribution policy in general?
(3) What are the benefits and drawbacks of having a residual policy? (Hint: Don’t forget about clientele effects and signaling.)d. (1) Describe the methods used by a corporation when making a distribution through dividend payments.
(2) What is the definition of a stock repurchase? Describe the steps that a corporation takes when it makes a stock repurchase distribution.e. Discuss the benefits and drawbacks of a company repurchasing its own stock.
f. Assume IWT has decided to distribute $50 million in liquid short-term investments that it now holds. IWT’s operating value is estimated to be around $1,937.5 million, with debt of $387.5 million and no preferred shares. IWT has a total of 100 million shares outstanding, as previously stated.
(1) Assume that IWT has not yet distributed the data. What is the intrinsic value of IWT’s stock? What is the stock’s intrinsic value per share?
2) Assume that IWT has just distributed $50 million in dividends. What is the intrinsic value of IWT’s stock? What is the stock’s intrinsic value per share?
(3) Assume IWT has recently issued the $50 million dividend in the form of stock repurchases. What is the intrinsic worth of IWT’s equity now? IWT repurchased how many shares? After the repurchase, how many shares remained on the market? After the repurchase, what is the stock’s intrinsic value per share?
a. Describe the process most companies go through when deciding on dividend policy.
g. What is the difference between stock splits and stock dividends? What are the benefits and drawbacks of each?
i. How does a dividend reinvestment plan (DRIP) work?2nd question
Gamut Satellite Inc. manufactures satellite earth stations, which cost $150,000 each. The firm’s fixed costs, F, are $1.5 million, it produces and sells 20 earth stations each year, earnings total $400,000, and the firm’s assets (all equity financed) are $5 million. The company forecasts that changing its production method will result in a $10 million increase in assets and a $500,000 reduction in fixed operating costs. This adjustment will save $5,000 in variable expenses per unit while increasing output by 30 units. To allow sales of the additional output, the sales price on all units must be reduced to $140,000. The company has zero tax rate because of tax loss carryforwards, an 18 percent cost of equity, and no debt.
Calculate the variable per-unit cost.
Calculate the new profit if the change is implemented.
What is the profit margin on the incremental profit?
What is the project’s estimated annual rate of return (measured as incremental profit divided by investment) for the coming year?
Is it worthwhile for the company to invest? Why do you think that is?
Would the company’s break-even point rise or fall as a result of the change?
Is the current situation more or less risky for the company than the previous one? Exhibit how things work
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