Mini Case in Financial Management: Theory and Practice

The purpose of this assignment is to explain core concepts related to cash distributions and
capital structure.
Read the Chapter 14 Mini Case in Financial Management: Theory and Practice. Using
complete sentences and academic vocabulary, please answer question a.
Create a 3-5 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 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.
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 been able to avoid issuing new stock and thus own all of 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.
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? Discuss
the effects on distribution policy consistent with: (1) the signaling hypoth-esis (also called the
information content hypothesis) and (2) the clientele effect.