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STATEMENT OF THE PROBLEM Although this case presents several different issues to consider the underlying problem is the correct implementation of Eastboros dividend policy Eastboro was founded as a manufacturer of machine parts and has traditionally paid a fairly substantial dividend However in recent years the core focus of the company has shifted toward technology in the fields of computer-aided design and manufacturing highlighted by its latest development Artificial Workforce This shift in the focus of Eastboro has brought about some financial changes as well With revenues falling they have missed two quarters worth of dividend payments and have promised to try to begin repayment of them by the end of 2001 However to do this they may need to borrow money not only in 2001 but in the next several years Eastboro has always been debt averse so this is an unsettling prospect for them There are several options being discussed such as a zero-dividend payout a 40 payout and a residual payout policy This major issue as well as what direction the firm is going and whether that corresponds to the wishes of current shareholders are the main issues needing to be addressed by Ms Campbell FACTS Current dividend policy 40 Attacks on World Trade Center and Pentagon occurred one week prior Stock has fallen 18 since attacks Firm has committed itself to resuming dividend payout presumably in 2001 Potential name change to Eastboro Advanced Systems International Inc Rated as an A company by Value Line Recent decline in net revenues and profit margins Future international growth is expected Involved in high cyclical environment GDP expected to fall from 4 to 16 Largest of individual investors are focused on retirement needs Largest of institutional investors are value-oriented Management expects growth of 15 CADCAM and cutting edge technological products will account for 75 of sales in future Expansion through joint ventures and acquisitions of small software companies Management
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