Champion Road Machinery
(5 pages of text)
Scott Hall, vice-president of finance and chief financial officer of Champion Road Machinery Limited, was preparing a presentation on the company's proposed dividend policy for a board of directors' meeting scheduled for the middle of August. It had been only three months since the company completed its initial public offering, at which time the prospectus stated that: The company does not anticipate paying cash dividends on the common shares in the foreseeable future, but intends to retain future earnings for reinvestment in the business. However, earnings were well ahead of those projected in the prospectus and the company had succeeded in managing cash better than anticipated.
This case exposes students to numerous dividend policy issues. It considers most of the conventional factors such as projected cash needs, target capital structure and the probability that the company would need to seek external equity financing in the future, signalling effect, clientele effect, effect on the price of the stock, tax effects on stockholder, and the average dividend yield of the TSE 300 companies and Champion's direct competition.
Canada, Medium, 1994
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