Decision Case: Keep that Dividend! You've just been promoted to chief financial officer of Humongous Company. Boy, all those accounting and finance courses sure paid off. Trouble is, the company’s not doing all that great.

Year-end is rolling around, and the company’s going to report a loss, again. The immediate problem is that the company has paid an annual dividend every year since 1908, but this year the dividend is questionable. Great, you finally get the job you’ ve been after, and now you won’t be able to pay a dividend. The company even paid dividends during the Great Depression of the 1930s. And now, you're going to break a 90-year streak. You’ve got to do something. Let’s evaluate the alternatives. You could borrow the money for the dividend, and that would at least give you until this time next year to get things under control. Of course, borrowing could be expensive. Or, you remember reading about companies that distributed some of their inventories as dividends. You remember that one was a distillery, and some folks didn’t like the idea of whiskey as a dividend. But hey! You could give something from your health food division—who could quarrel with that? What about a coupon for | package of Twiggy Burgers for each share of stock? Of course, you’re not sure what that pension fund holding 100,000 shares of your stock will do with all those Twiggy Burgers, but it’s something to think about. What other alternatives might there be? Write a formal memo to your board of directors addressing the dividend question.

a. Identify the alternative courses of action that you have as CFO with respect to the current dividend.

b. Identify the consequences, along with the advantages and disadvantages of each alternative, and state any additional information you might need to make a decision regarding the dividend.

c. Recognizing that you might not have all of the information you would like for making the decision, indicate which alternative you would choose with respect to the dividend and why.