PIRATES OF SILICON VALLEY

PIRATES OF SILICON VALLEY


1. Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.

2. It continues the 2013 dividend payout ratio.
3. It uses a pure residual policy with all distributions in the form of dividends (35% of the $7.3 million investment is financed with debt).

4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy.
What is the incremental profit? To get a rough idea of the project- profitability, what is the project- expected rate of return for the next year (defined as the incremental profit divided by the investment)? Should the firm make the investment? Why or why not?