Instruction: Fining Tractor and Equipment Company

This case will give you an opportunity to understand and appreciate numerous dividend
policy related issues. It considers most of the conventional factors in dividend policy
decisions such as cash needs, target capital structure, sources of financing, signaling
effect, clientele effect, and trend in the market.

Questions to be answered:

1. What are the arguments for paying dividends? (Theory question; consult finance
book)
2. What are the arguments for not paying dividend? (Theory question: consult
finance book)
3. What is the dividend signaling effect? Explain it in the light of this case. What
kind of signal the market would get, if (i) the firm decides to pay dividends OR
(ii) the firm decides not to pay dividend?
4. What is the clientele effect? Explain it in the light of this case. Who are the major
shareholders or stakeholders of this firm? How would they react if the firm
decides not to pay dividend?
5. Can Fining Tractor pay a cash dividend? Do they have enough cash to pay
dividend? Support your answer with Balance Sheet/Income Statement/Cash Flow
Statement Analysis (look at some vital ratios; profitability; retained earnings etc.)
6. What are the current firm specific factors that may influence Fining Tractor to not
pay dividends?
7. Can/should Fining Tractor consider paying stock dividend?
8. Give your recommendation should Fining Tractor pay dividends?

While writing up the case, you have to answer these questions. However, as you may
find, many of these questions are interrelated. Organize your case write-up accordingly.
Do not forget to include a background section at the beginning of the case report.

The presenting group also needs to address these issues. Your arguments are to be
supported by necessary calculations, if required.

Case Report Submission (February 1, 2012):

Maximum four pages; 1.5 spacing; 12 font.

Case Report should be submitted at the beginning of the class.