In September 2015, Sara Larson, the chief financial officer (CFO) of a large computer-aided design and computer-aided manufacturing equipment manufacturer needed to decide whether to pay out dividends to the firm’s shareholders, or to repurchase stock.

If she chose to pay dividends, she would have to decide upon the magnitude of the payout. A subsidiary question is whether the firm should embark on a corporate-image campaign, changing its corporate name to reflect its new outlook.

Objectives:

Review many practical aspects of dividend and share buyback decisions, including signaling and clientele effects, and the finance and investment implications of increasing dividend payouts and share repurchase decisions.

Prepare an analysis demonstrating the impact on cash-flows of the dividend versus the stock repurchase scenarios.

Indicate the impacts on the balance sheet for either decision

Prepare a summary indicating the practical considerations when setting a firm’s dividend policy.

Prepare a summary recommendation of a dividend versus stock repurchase.