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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
Gainesboros board of directors regarding the companys 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. Gainesboros 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 Gainesboros 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
communitys 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 Gainesboros 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?

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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

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