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3. What happens to Rockboro's financing need and unused debt capacity if: a. No dividends are paid? b. A 20% payout is pursued? c. A
3. What happens to Rockboro's financing need and unused debt capacity if: a. No dividends are paid? b. A 20% payout is pursued? c. A 40% payout is pursued? d. A residual payout policy is pursued? Note that case Exhibit 8 presents an estimate of the amount of borrowing needed. Assume that maximum debt capacity is, as a matter of policy, 40% of the book value of equity. 4. How might Rockboro's various providers of capital, such as its stockholders and creditors, react if Rockboro declares a dividend in 2005? 'Nhat are the arguments for and against the zero payout, 20% payout, 40% payout, and residual payout policies? What should Sara Larson recommend to the board of directors with regards to a long-term dividend payout policy for Rockboro Machine Tools Corporation? 5. How might various providers of capital, such as stockholders and creditors, react if Rockboro renurchased its shares? Should Rnckbnrn do so
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