While conducting the analysis of EMI group’s dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who holds most of our outstanding shares. High tax-bracket individuals would prefer zero-to-low dividend payout to save on taxes. Low tax-bracket individuals would prefer a low-to-medium dividend payout, which gives them additional income while helping them save on taxes. An investing corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI group, we must first …show more content…

What are the central challenges facing the EMI management team?

2. As CFO, how can Martin Stewart contribute to successfully managing EMI?

3. What do you learn from the sources-and-uses statement provided in case Exhibit 7? What are the implications for EMI’s dividend policy?

4. What dividend policy would you recommend for EMI?

Supplementary Material

An Excel spreadsheet (Case_27.xls) is available for students.

Hypothetical Teaching Plan

1. How is EMI doing? What are your concerns? What does EMI have going for itself?

2. It seems like this dividend decision is a big deal. Do shareholders generally prefer firms that pay dividends? Do you think EMI shareholders would pay more if EMI promised a 6p dividend?

3. Why should the dividend policy matter much at all? Why is this dividend decision so important to EMI?

4. What should Stewart do?

Case Analysis

1. How is EMI doing? What are your concerns? What does EMI have going for itself?

In April 2007, EMI management faces an important challenge as it searches for a new business model in a digital music world. Annual revenue is down 16% for the year and 19% since 2003. Investors are reeling from a series of negative-earnings-guidance surprises. Earnings per share for the year will be announced at −36.3p per share, the company’s worst profit figures. The industry continues to look for a bottom in the