In light of the situation mentioned above, FPL has to ensure that it has the resources available to meet future competition where one of the determinants of winning or retaining new business may be price.
The best way to learn about business practice is to study real-world business cases. This leads to unstructured learning process resulting in missed details and at worse wrong conclusions.
Because often dividends are perceived as spendable income some stock holders look at stocks as a source of income as it is easier to get a dividend instead of selling the stocks.
FPL can not protect itself by restricting access to its transmission system since it was sued for doing so. Drawing a motivation chart of the key players and their priorities from the case study description.Our judgement assumes a dividend cut from FPL. You should try to understand not only the organization but also the industry which the business operates in. From an investors perspective, is the payout ratio appropriate? Were these appropriate for the nature of its business? Why do firms pay dividend? The value of the assets of FPL should be independent of the financial structure of the firm. This was the first-ever dividend cut for a healthy utility, so the company did its best to explain to investors why it had taken such an unusual step. How to cite this page Choose cite format:. FPL currently maintains an inappropriate payout ratio. HBR case studies provide anecdotal instances from managers and employees in the organization to give a feel of real situation on the ground. Risk free rate is assumed to be the yield on 30 year US treasury bond 3. To prepare for competition and sustainable growth in near future FPL should use its excess cash to invest in new positive NPV projects. FPL also can use this strategy to increase incentive compensation by granting stock options to employees and thus, increase employment commitment and recruiting attractiveness to have competent personnel for future growth. Here you can find typical business cases and how to draw conclusions from facts and analysis. For example you can recommend a low cost strategy but the company core competency is design differentiation.
From an investors perspective, is the payout ratio appropriate? Once refreshed go through the case solution again - improve sentence structures and grammar, double check the numbers provided in your analysis and question your recommendations.
Purely with regards to the choice between dividend payout and share repurchases, FPL should choose the mechanism that is most tax efficient. You can use the following strategy to organize the findings and suggestions. These proposals had a profound effect on the competitive landscape of the utilities industry.
Because of the competitive market, the dividend pay will be reduced as it will use the cash in positive NVP project. Reading up the HBR fundamentals helps in sketching out business case study analysis and solution roadmap even before you start reading the case study.
What debt policy would your recommend? The Modigliani-Miller clearly postulates that the dividend policy is irrelevant.