Gaines Boro Case Analysis

GAINESBORO MACHINE TOOLS CORPORATION Business Case Analysis I.

Introduction

Gainesboro Corporation is a company based in Concord, New Hampshire which was founded in 1923 by two mechanical engineers, James Gaines and David Scarboro. In its earlier years, the company had designed and manufactured metal presses, dies and molds. In 1940s, they also started to manufacture armored vehicle, and tank parts during the war. In 1980s, the company entered into computer aided design and computer aided manufacturing. Ashley Swenson, the chief financial officer (CFO) of Gainesboro Machine Tools Corporation, was problematic because she has to submit a recommendation to Gainesboro’s board of directors regarding the company’s dividend policy. This had been the topic debated by senior managers of the company. In addition to the mentioned problem was a bigger one. The stock market had fallen which resulted after Hurricane Katrina caused massive destruction in the United States. Gainesboro’s stocks were affected dropping its price by 18% with its price now at $22.15. Because of this a lot of companies decided to buy back their stocks. Now, Ashley Swenson is torn between the decision to pay shareholder dividends or to buy back Gainesboro’s stocks. Regarding the dividend of Gainesboro, the company had consecutively dropped its earnings. Despite the decline, the company has still managed to pay dividends for 2002 to 2004 with the company having extraordinary losses during 2004. Because of all of this the board had decided to give no dividend but changed their mind to just delay the dividend sometime in 2005. In relation to the problem with earnings, the senior management proposed to change the company name to “Gainesboro Advanced Systems International, Inc.” along with its advertising campaign to improve the investing community’s perspective of the company. Aside from this, the management believes that Gainesboro demonstrated potential growth and profitability. The company also has an “A” rating from Value Line. Because of Gainesboro’s new product called Artificial Workforce, the company is expected to recover. The company has goal of having an average compound growth rate of 15%.

II.

Statement of the Problem 1. What dividend policy would be appropriate to Gainesboro Machine Tools Corporation given its situation?

1 Agarin, Kimberly Sweetzel B. | Cervantes, Vanica Grace T. | Garcia, Julrey Florence C. | Pacoma, Aira Alexis P.

GAINESBORO MACHINE TOOLS CORPORATION Business Case Analysis III.

SWOT Analysis

2 Agarin, Kimberly Sweetzel B. | Cervantes, Vanica Grace T. | Garcia, Julrey Florence C. | Pacoma, Aira Alexis P.