Case study: E incorporation is a small company founded by Person T and Person J. They are the manufacturers of integral circuits to capitalize on the mixed-signal design technology, which is very complex. Recently, the company decided to include PC peripheral devices, motherboards, and other digital consumer electronics. In addition to T and J, Person N who provided funds for the company, became the third primary owner. Each of them owns 25% of 1 million shares outstanding. The employees of the company and other investors are part of the shareholders, and also own the remaining shares. The company designed the new computer motherboards, which are more effective and less expensive to manufacture; but the cost incurred to design is very high and the owners are unwilling to bring other owners. Thus, ETI sold the design to an outside firm at the rate of after-tax payment of $30 million. Characters in the case: Company E: Manufacturers of integral circuits. Person T: The electronic engineer and founder of the company E. Person J: The electronic engineer and founder of the company E. Person N: The new owner of the Company E. To determine: The impacts of using the extra cash dividend to pay off debts and how it affects the value of the company.

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Chapter 17, Problem 2M

Summary Introduction

Case study:

E incorporation is a small company founded by Person T and Person J. They are the manufacturers of integral circuits to capitalize on the mixed-signal design technology, which is very complex. Recently, the company decided to include PC peripheral devices, motherboards, and other digital consumer electronics.

In addition to T and J, Person N who provided funds for the company, became the third primary owner. Each of them owns 25% of 1 million shares outstanding. The employees of the company and other investors are part of the shareholders, and also own the remaining shares.

The company designed the new computer motherboards, which are more effective and less expensive to manufacture; but the cost incurred to design is very high and the owners are unwilling to bring other owners. Thus, ETI sold the design to an outside firm at the rate of after-tax payment of $30 million.

Characters in the case:

Company E: Manufacturers of integral circuits.

Person T: The electronic engineer and founder of the company E.

Person J: The electronic engineer and founder of the company E.

Person N: The new owner of the Company E.

To determine: The impacts of using the extra cash dividend to pay off debts and how it affects the value of the company.

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