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Megaware Incorporated is a technology firm that was founded eight years ago by John Thompson and Jill Dillman. Megaware manufactures various hardware and software components. Its products are used in personal computers and other peripheral devices. In addition to John and Jill, Nick Jones is also an owner of the firm because he provided capital. Each of the three owns 20 percent of the company. The current employees own the remaining part of the company. The firm recently developed a new computer hardware component. The component is supposed to be more energy efficient and less costly to produce. After investigating the possibility of manufacturing the new hardware component, Megaware determined that constructing a new plant would be too costly. John, Jill, and Nick do not want to bring in another outside investor, so Megaware has decided to sell the hardware component for an after-tax payment of $42 million.
Case Study Problems Problem 1. John thinks that the firm should use the excess cash flow to pay a special one-time dividend to the investors. How will implementing this proposal affect the value of the company as well as the stock price?
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In the given assignment, on the basis of given case study the information given in the assignment was analysed and on the basis of that our view was represented in the assignment regarding whether payment of dividend by the company is favourable for the company considering its impact on market price per share of the company.
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