The book is FIN 521 Financial Management Theory and Practice, 15ed.
at the end of chapter 14, page 604 and 605.a mini case; Integrated Waveguide Technologies, the question are:
A. (1). What is meant by the term "distribution policy"? How has the mix of divided payouts and stock repurchases changed over time?
B. Discuss the effects on distribution policy consistent with: (1). the signaling hypothesis (also called the information content hypothesis) and (2) the clientele effect.
C. (1). Assume that IWT has completed its IOP and has a 4112.5 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 forecast 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 to $160 million?
(3). What are the advantages and disadvantages of the residual policy?
E. Discuss the advantages and disadvantages of a firm repurchasing its own shares.