88667256 Southeastern Steel Company

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  Southeastern Steel Company Case Submitted To: Submitted By: Dr. Suveera Gill Anmol Verma Ekta Aggarval Kanav Dosajh Kinshuk Gupta Nitesh Das Tanya Trikha Sakshi Wali  Southeastern Steel Company Case Facts ã Southeastern steel company  (SSC) was formed 5 years ago to exploit a New continuous-casting process. ã SSC’s  founders, Donald Brown and Margo Valencia, had been employed in the research department of a major Integrated-steel company, but when that company decided against using the new process (which Brown and Valencia had developed), they decided to strike out on their own. ã One advantage of the new process  was that it required relatively little capital in comparison with the typical Steel company, so Brown and Valencia have been able to avoid issuing new stock, and thus they own all of the shares . ã However, SSC has now reached the stage where outside equity capital is necessary if the firm is to achieve its growth targets yet still maintain its target capital structure of 60% equity and 40% debt.  Case Facts ã Therefore, Brown And Valencia have decided to take the company public. Until now, Brown and Valencia have paid themselves reasonable salaries but routinely reinvested all after-tax earnings in the firm, so dividend policy has Not been an issue. ã However, before talking with potential outside Investors, they must decide on a dividend policy.   ã  Now as a part of Pierce Westerfield Carney (PWC) a national consulting firm, we will review the theory of dividend policy and Discuss the following questions.  A1.What is meant by the term Distribution Policy? ã Distribution policy is defined as the firm’s policy with regard to paying out earnings as dividends versus retaining them for reinvestment in the firm. ã Distribution policy involves:-  – How much free cash flow should be passed to shareholders?  – How should cash be provided to the shareholders- Raising Dividend OR Repurchasing Stock?  – Maintain a stable payment policy OR let the payments vary as conditions change?
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