This is a Collaborative Learning Community (CLC) assignment.

The purpose of this assignment is to explain core concepts related to cash distributions and capital structure.

Read the Chapter 14 Mini Case inFinancial Management: Theory and Practice. Complete Parts 1 and 2.

Part 1: Using complete sentences and academic vocabulary, please answer questions a through d.

Part 2: Create a 5-10-slide PowerPoint presentation in which you summarize your answers from the mini case. Be sure to include graphs, charts, and trends as appropriate.

Present the PowerPoint to the class as directed by your instructor. In addition, submit both your answers to the mini case and your PowerPoint to the instructor.

While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

You are required to submit this assignment to Lopes Write.A link to the Lopes Write technical support articles is located in Class Resources if you need assistance.

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Please answer the above.

The note should have intext citations. For example, anything with numbers or quotes per paragraph. The intent citation just needs to be the Author's last name and year it was published. Please also include REFERENCES. Thanks

FOLLOWING CAN BE USED TO WRITE THE NOTE (NOT QUESTION PART)

Mini Case

Integrated Waveguide Technologies (IWT) is a 6-year-old company founded by Hunt Jackson and David Smithfield to exploit metamaterial plasmonic technology to develop and manufacture miniature microwave frequency directional transmitters and receivers for use in mobile Internet and communications applications. IWT's technology, although highly advanced, is relatively inexpensive to implement, and its patented manufacturing techniques require little capital as compared to many electronics' fabrication ventures. Because of the low capital requirement, Jackson and Smithfield have avoided issuing new stock and thus own all the shares. Because of the explosion in demand for its mobile Internet applications, IWT must now access outside equity capital to fund its growth, and Jackson and Smithfield have decided to take the company public. Until now, Jackson and Smithfield have paid themselves reasonable salaries but routinely reinvested all after-tax earnings in the firm, so dividend policy has not been an issue. However, before talking with potential outside investors, they must decide on a dividend policy.

Your new boss at the consulting firm Flick and Associates, which has been retained to help IWT prepare for its public offering, has asked you to make a presentation to Jackson and Smithfield in which you review the theory of dividend policy and discuss the following issues.

QUESTION A

(1) What is meant by the term "distribution policy"? How has the mix of dividend payouts and stock repurchases changed over time?

(2) The terms "irrelevance," "dividend preference" (or "bird-in-the-hand"), and "tax effect" have been used to describe three major theories regarding the way dividend payouts affect a firm's value. Explain these terms, and briefly describe each theory.

(3) What do the three theories indicate regarding the actions management should take with respect to dividend payouts?

(4) What results have empirical studies of the dividend theories produced? How does all this affect what we can tell managers about dividend payouts?

QUESTION B

Discuss the effects on distribution policy consistent with:

(1) the signaling hypothesis (also called the information content hypothesis) and

(2) the clientele effect.

QUESTION C

Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming year. You have determined that its present capital structure (80% equity and 20% debt) is optimal, and its net income is forecasted at $140 million. Use the residual distribution approach to determine IWT's total dollar distribution. Assume for now that the distribution is in the form of a dividend. Suppose IWT has 100 million shares of stock outstanding. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? What would happen to the payout ratio and DPS if net income were forecasted to decrease to $90 million? To increase it to $160 million?

In general terms, how would a change in investment opportunities affect the payout ratio under the residual distribution policy?

What are the advantages and disadvantages of the residual policy? (Hint: Don't neglect signaling and clientele effects.)

QUESTION D

Describe the procedures a company follows when it makes a distribution through dividend payments.

What is a stock repurchase? Describe the procedures a company follows when it makes a distribution through a stock repurchase.

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