1. EASTBORO
MACHINE TOOLS CORPORATIONS
Rajiv Kanayalal-29109325 Ryan Akbar-29109331
Yursyof Helmi-29109335 Putri Utami-29109337
Aldilla Wira N-29109348 M.Fajar-29109359
Azniar Nurina-29109361

2. Company Background
 Founded in 1923 in Concord, New Hampshire
by James East & David Peterboro
 Designed & manufactured metal
presses, dies and mold
 1940s produced tank, armored vehicle part
and war equipment
 After war produced presses and molds for
plastic and metal
 1970s entered CAD/CAM

3. Its stock plummeted 18% to
$22.15 in response to 9/11
Its revenues declined from
$911 million in 1994 to $757
million in 2000

4. Three-Key Points
In order to achieve the growth goal,
management proposed a strategy relying on:
1.The mix of production would shift
substantially
2.The company would expand aggressively
internationally
3.The company would expand through joint
venture and aquisitions

5. Choices of Action
1. Buy Back its stock
2. Campaign of corporate-image
advertising
3. Dividen policy:
-Zero-dividend payout
-40% dividend payout
-Residual dividend payout

6. Buy Back
 This action doesn’t reflect the
company’s future prospect
 Doesn’t imply a chance to achieve the
growth goal

7. Campaign of corporate-image
advertising
Cost approximately $10 million
No empirical evidence that stock
prices responded favorably to
corporate image campaigns

8. Dividend Policy
 The dividend payout will provide a very
strong signal to investors of true
financial strength and of the credibility
of earnings reports
 A high dividend could attract investors
to buy a certain company’s shares
 The dividend policy could imply stock price
in the future

9. Zero-dividend payout
Projection
Total
2001 2002 2003 2004 2005 2006 2007 2001-07
Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630
Sources:
Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78
Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00
40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78
Uses:
Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68
Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07
63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75
Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02
Dividend - - - - - - - -
After dividend
Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02
*Ignoring the effects of borrowings on interest and amortization.

10. 15%-dividend payout
Projections
Total
2001 2002 2003 2004 2005 2006 2007 2001-07
Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630
Sources:
Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78
Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00
40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78
Uses:
Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68
Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07
63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75
Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02
Dividend 2.71 6.00 8.63 10.92 13.70 14.70 24.00 80.67
After dividend
Excess cash/(Borrowing needs) (25.42) (13.27) (4.42) 0.61 15.68 12.53 53.64 39.36
*Ignoring the effects of borrowings on interest and amortization.

11. 20%-dividend payout
Projections
Total
2001 2002 2003 2004 2005 2006 2007 2001-07
Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630
Sources:
Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78
Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00
40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78
Uses:
Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68
Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07
63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75
Excess cash/(Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02
Dividend 3.62 8.01 11.51 14.56 18.26 19.60 32.00 107.56
After dividend
Excess cash/(Borrowing needs) (26.32) (15.27) (7.30) (3.03) 11.11 7.63 45.64 12.47
*Ignoring the effects of borrowings on interest and amortization.

12. 40%-dividend payout
Projections
Total
2001 2002 2003 2004 2005 2006 2007 2001-07
Sales $ 870 $ 1,001 $ 1,151 $ 1,323 $ 1,522 $ 1,750 $ 2,013 9,630
Sources:
Net income 18.10 40.03 57.54 72.79 91.31 98.01 160.01 537.78
Depreciation 22.50 25.50 30.00 34.50 40.50 46.50 52.50 252.00
40.60 65.53 87.54 107.29 131.81 144.51 212.51 789.78
Uses:
Capital expend. 43.80 50.37 57.54 66.17 68.48 78.76 90.57 455.68
Change in Working capital 19.50 22.43 25.79 29.59 33.95 38.52 44.29 214.07
63.30 72.79 83.33 95.75 102.44 117.28 134.86 669.75
Excess cash (Borrowing needs) (22.70) (7.27) 4.21 11.53 29.37 27.23 77.64 120.02
Dividend 7.24 16.01 23.02 29.11 36.52 39.20 64.00 215.11
After dividend
Excess cash (Borrowing needs) (29.94) (23.28) (18.80) (17.58) (7.15) (11.97) 13.64 (95.09)
*Ignoring the effects of borrowings on interest and amortization.

13. Residual-dividend payout
Projections
Total
2001 2002 2003 2004 2005 2006 2007 2001-07
Sales $ 870 $ 1.001 $ 1.151 $ 1.323 $ 1.522 $ 1.750 $ 2.013 9.630
Sources:
Net income 18,10 40,03 57,54 72,79 91,31 98,01 160,01 537,78
Depreciation 22,50 25,50 30,00 34,50 40,50 46,50 52,50 252,00
40,60 65,53 87,54 107,29 131,81 144,51 212,51 789,78
Uses:
Capital expend. 43,80 50,37 57,54 66,17 68,48 78,76 90,57 455,68
Change in Working capital 19,50 22,43 25,79 29,59 33,95 38,52 44,29 214,07
63,30 72,79 83,33 95,75 102,44 117,28 134,86 669,75
Excess cash/(Borrow ing needs) (22,70) (7,27) 4,21 11,53 29,37 27,23 77,64 120,02
Dividend - - 1,68 4,61 11,75 10,89 31,06 60,00
After dividend
Excess cash/(Borrow ing needs) (22,70) (7,27) 2,53 6,92 17,62 16,34 46,59 60,03

14. Comparison

15. Conclusion & Recommendation
1. From 0%-40% dividend payout show us that
as higher as the dividend payout, company
need more debt (borrowing cash)
2. Residual dividend payout give chance to
the company to reduce its debt and also
make investments to achieve its growth
goal
3. Our recommendation is the company
should use the residual dividend payout
policy