EASTBOROMACHINE TOOLS CORPORATIONSRajiv Kanayalal-29109325           Ryan Akbar-29109331Yursyof Helmi-29109335            ...
Company Background Founded in 1923 in Concord, New Hampshire  by James East & David Peterboro Designed & manufactured me...
Its stock plummeted 18% to $22.15 in response to 9/11Its revenues declined from $911 million in 1994 to $757 million in ...
Three-Key PointsIn order to achieve the growth goal,management proposed a strategy relying on:1.The mix of production woul...
Choices of Action1. Buy Back its stock2. Campaign of corporate-image   advertising3. Dividen policy:         -Zero-dividen...
Buy Back This action doesn’t reflect the  company’s future prospect Doesn’t imply a chance to achieve the  growth goal
Campaign of corporate-image                 advertisingCost approximately $10 millionNo empirical evidence that stock pr...
Dividend Policy The dividend payout will provide a very  strong signal to investors of true  financial strength and of th...
Zero-dividend payoutProjection                                                                                            ...
15%-dividend payoutProjections                                                                                            ...
20%-dividend payoutProjections                                                                                            ...
40%-dividend payoutProjections                                                                                            ...
Residual-dividend payoutProjections                                                                                       ...
Comparison
Conclusion & Recommendation1. From 0%-40% dividend payout show us that   as higher as the dividend payout, company   need ...
Eastboro case analysis
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Eastboro case analysis

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Eastboro case analysis

  1. 1. EASTBOROMACHINE TOOLS CORPORATIONSRajiv Kanayalal-29109325 Ryan Akbar-29109331Yursyof Helmi-29109335 Putri Utami-29109337Aldilla Wira N-29109348 M.Fajar-29109359 Azniar Nurina-29109361
  2. 2. Company Background Founded in 1923 in Concord, New Hampshire by James East & David Peterboro Designed & manufactured metal presses, dies and mold 1940s produced tank, armored vehicle part and war equipment After war produced presses and molds for plastic and metal 1970s entered CAD/CAM
  3. 3. Its stock plummeted 18% to $22.15 in response to 9/11Its revenues declined from $911 million in 1994 to $757 million in 2000
  4. 4. Three-Key PointsIn order to achieve the growth goal,management proposed a strategy relying on:1.The mix of production would shiftsubstantially2.The company would expand aggressivelyinternationally3.The company would expand through jointventure and aquisitions
  5. 5. Choices of Action1. Buy Back its stock2. Campaign of corporate-image advertising3. Dividen policy: -Zero-dividend payout -40% dividend payout -Residual dividend payout
  6. 6. Buy Back This action doesn’t reflect the company’s future prospect Doesn’t imply a chance to achieve the growth goal
  7. 7. Campaign of corporate-image advertisingCost approximately $10 millionNo empirical evidence that stock prices responded favorably to corporate image campaigns
  8. 8. Dividend Policy The dividend payout will provide a very strong signal to investors of true financial strength and of the credibility of earnings reports A high dividend could attract investors to buy a certain company’s shares The dividend policy could imply stock price in the future
  9. 9. Zero-dividend payoutProjection Total 2001 2002 2003 2004 2005 2006 2007 2001-07Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630Sources:Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00 40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78Uses:Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07 63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02Dividend - - - - - - - -After dividendExcess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02*Ignoring the effects of borrowings on interest and amortization.
  10. 10. 15%-dividend payoutProjections Total 2001 2002 2003 2004 2005 2006 2007 2001-07Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630Sources:Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00 40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78Uses:Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07 63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02Dividend 2.71 6.00 8.63 10.92 13.70 14.70 24.00 80.67After dividendExcess cash/(Borrowing needs) (25.42) (13.27) (4.42) 0.61 15.68 12.53 53.64 39.36*Ignoring the effects of borrowings on interest and amortization.
  11. 11. 20%-dividend payoutProjections Total 2001 2002 2003 2004 2005 2006 2007 2001-07Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630Sources:Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00 40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78Uses:Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07 63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02Dividend 3.62 8.01 11.51 14.56 18.26 19.60 32.00 107.56After dividendExcess cash/(Borrowing needs) (26.32) (15.27) (7.30) (3.03) 11.11 7.63 45.64 12.47*Ignoring the effects of borrowings on interest and amortization.
  12. 12. 40%-dividend payoutProjections Total 2001 2002 2003 2004 2005 2006 2007 2001-07Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630Sources:Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00 40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78Uses:Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07 63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75Excess cash (Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02Dividend 7.24 16.01 23.02 29.11 36.52 39.20 64.00 215.11After dividendExcess cash (Borrowing needs) (29.94) (23.28) (18.80) (17.58) (7.15) (11.97) 13.64 (95.09)*Ignoring the effects of borrowings on interest and amortization.
  13. 13. Residual-dividend payoutProjections Total 2001 2002 2003 2004 2005 2006 2007 2001-07Sales $ 870 $ 1.001 $ 1.151 $ 1.323 $ 1.522 $ 1.750 $ 2.013 9.630Sources:Net income 18,10 40,03 57,54 72,79 91,31 98,01 160,01 537,78Depreciation 22,50 25,50 30,00 34,50 40,50 46,50 52,50 252,00 40,60 65,53 87,54 107,29 131,81 144,51 212,51 789,78Uses:Capital expend. 43,80 50,37 57,54 66,17 68,48 78,76 90,57 455,68Change in Working capital 19,50 22,43 25,79 29,59 33,95 38,52 44,29 214,07 63,30 72,79 83,33 95,75 102,44 117,28 134,86 669,75Excess cash/(Borrow ing needs) (22,70) (7,27) 4,21 11,53 29,37 27,23 77,64 120,02Dividend - - 1,68 4,61 11,75 10,89 31,06 60,00After dividendExcess cash/(Borrow ing needs) (22,70) (7,27) 2,53 6,92 17,62 16,34 46,59 60,03
  14. 14. Comparison
  15. 15. Conclusion & Recommendation1. From 0%-40% dividend payout show us that as higher as the dividend payout, company need more debt (borrowing cash)2. Residual dividend payout give chance to the company to reduce its debt and also make investments to achieve its growth goal3. Our recommendation is the company should use the residual dividend payout policy

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