Problem set 14 | Business & Finance homework help

Problem set 14 VIK1299Petersen & Peterson Company is a 6-year-old company founded by Jackson Peterson and Mary Peterson to exploit metamaterial plasmonic technology to develop and manufacture miniature microwave frequency directional transmitters and receivers for use in mobile Internet and communications applications. The technology, although highly advanced, is relatively inexpensive to implement and their patented manufacturing techniques require little capital in comparison to many electronic fabrication ventures. Because of the low capital requirement, Jackson and Mary have been able to avoid issuing new stock and thus own all the business shares. Because of the explosion in demand for its mobile Internet applications, the company must now access outside equity capital to fund its growth and the couples have decided to take the company public. Until now, Jackson and Mary have paid themselves reasonable salaries but routinely reinvested all after-tax earnings in the firm, so dividend policy has not been an issue. However, before talking with potential outside investors, they must decide on a dividend policy. Your supervisor at the consulting firm Ernst Young & Associates, which has been retained to help the company prepare for its initial public offering, has asked you to make a presentation to Jackson and Mary in which you plan to review the theories of dividend policy and discuss capital structure decisions.