SOUTHBORO CORPORATION Issue:<Tab/> What dividend policy should Southboro Corporation adopt in the long-term? Background: Southboro is a publicly-traded Company with 51% owned by public. It is currently engaged in the sale of CAD/CAM equipment (45% of total revenues), presses and molds (40% of total revenues), miscellaneous machines (15%). The firm has just completed a restructuring of its operations in the face of declining sales and has suspended payment of dividends during the 1st …showed first 75 words of 843 total…

…showed last 75 words of 843 total…benchmarking made, the price per share is highest at 20% payout ratio (based on 1989). This validates 2 points raised earlier. o<Tab/>a high payout ratio will require higher additional debt/increased leverage which may send distress costs. The Company may exceed their maximum tolerable debt level. o<Tab/>Low plowback -.At 40% payout dividends is restrictive to growth. Dividends that do not restrict growth would enhance market price