President and CEO of Finning Tractor, has seen the earnings of the business drop below profitable levels due to a deep downturn. Several restraint measures were instigated with little apparent impact. The case occurs at the point where a choice is impending on dividend policy with issues ranging from effect on stock price to the fact that the two majority shareholders may be undesirable to taking a reduction in the over $1.5 million in dividend income they were receiving annually.
Learning Objective: This case covers the usual dividend policy dilemmas like the effect on stock price of cutting or removing the dividend, sending signals to stockholders, keeping the requirements set out by the various acts for inclusion of Finning stock in life insurance and pension portfolios, and finally, the effect on the two families represented on the Board who have significant shareholdings in the business.
This case can be used in an introductory course when the subject affects the integration of capital budgeting, financing and dividend decisions. The importance of stock price to direction can also be addressed in this case. The case can be used with role playing.
Asking pupils to assume the function of the two family members who serve on the Board and receive an extremely sizeable dollar amount of dividends every year from the business provides additional insight into the difficulty.
Publication Date: 01/01/1984
This is just an excerpt. This case is about Finance
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