This case is about the impact of an environmental factor (External issue) on dividend policy of the firm (Internal issue). The environmental disaster was Hurricane Katrina which was caused the huge destruction across the south-eastern United States. Because of the storm, the stock market notably fell down.
Since it is possible that the price of the shares once more increase even more than before in the near future, Ashley Swenson, chief financial officer (CFO) of Gainesboro Machine Tools Corporation has the dilemma to buy back stock or to spend the money as dividend the shareholders. In fact, the question is: How can she forecast the fortune of the stock market? In the other word, what are the driving forces (as the external factors) which are affecting on internal factors such as dividend policy? Definitely, the best way is to use from Fuzzy Delphi Method (FDM).
To perceive FDM, please review my article of “Fuzzy Delphi Method to Design a Strategic Plan” on link”http://emfps.blogspot.com/2012/02/fuzzy-delphi-method-to-design-strategic.html”.
At the first, she can design a strategic plan including current and future BCG matrix. I think that one of the best reference books which has established a logical relationship between BCG matrix and Dividend policy is: “Corporate Financial Strategy” by Ruth Bender and Keith Ward (Elsevier Butterworth-Heinemann)”.
I would like to refer you page 34 (please review STEADY STATE), page 59 (Balancing business and financial risk), page 75 (Figure 4.14), page 226 (Dividends and buybacks) on 3rd edition (2009). Where is the location of the firm in BCG matrix? Stars (Growth), Question marks (Launch), Cash cows (Maturity) or Dogs (Decline).
According to this reference book, we have below conditions for each area of BCG matrix:
You can review the continuation of this case on below link:
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