This is for a finance project for the company Microsoft: Dividend and Capital St

Question

This is for a finance project for the company Microsoft:

Dividend and Capital Structure:

a) Analyze the current dividend policy of your company. If it doesn't pay a dividend, should it?

b) Analyze the target capital structure of your company including bank loans, leases, and other financial securities issued in addition to preferred stock, common stock, and debt. Why do you think it maintains the capital structure it does? Do you think it is an optimal capital structure? If not, what do you think would be? Justify your answer.

c) Does your company have a substantial degree of informational asymmetry (assets which are hard for outsiders to value)? Do you think this affects the capital structure of your company?

MERGER and INTERNATIONAL STRATEGY:

Describe and evaluate the merger and acquisition strategy and the international expansion strategy for your company.

Explanation / Answer

By early 2004, Microsoft's cash balance had crossed $50 billion. One persistent investor complaint against Microsoft has been its zero dividend policy. Microsoft has not paid dividends for 17 years. It believes in ploughing money back into its R&D (research and development). In part, due to increasing pressure from shareholders, in 2003 the company declared its first ever dividend for common stock. More recently, Microsoft has announced plans to pay back up to $75 billion of its cash to investors over a period of four years. This includes a one-time special dividend of $30 billion. The case outlines the evolution of Microsoft's dividend policy and the circumstances leading to the huge dividend payment in July 2004.

Microsoft Corporation develops, licenses, and supports software products and services; and designs and sells hardware worldwide. The company?s Windows & Windows Live division offers PC operating system that primarily includes Windows 7 operating system, Windows live suite of applications and Web services, and PC hardware products. Its Server and Tools division provides Windows Server operating systems, Windows Azure; Microsoft SQL Server, SQL Azure, Windows Intune, Windows Embedded, Visual Studio, Silverlight, system center products, Microsoft consulting services, and Premier product support services. This division also offers cloud-based services; and training and certification to developers and information technology professionals, as well as builds standalone and software development lifecycle tools for software architects, developers, testers, and project managers. The company?s Online Services division provides online information and content, including Bing, MSN, adCenter, and Atlas online tools for advertisers. Its Microsoft Business division offers Microsoft office, Microsoft Exchange, Microsoft SharePoint, Microsoft Lync, Microsoft Office project and office Visio, and Microsoft Dynamics ERP and CRM, as well as Microsoft Office Web Apps and Microsoft Office 365, which are online service offerings. The company?s Entertainment and Devices Division segment provides Xbox 360 entertainment platform, which includes the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 video games, and Xbox 360 accessories; Xbox LIVE; Skype; and Windows Phone. Microsoft Corporation markets and distributes its products and services primarily through original equipment manufacturers, distributors, and resellers, as well as through online. The company has strategic alliances with Nokia, and NIIT Ltd., as well as a strategic relationship Dominion Enterprises, Inc. Microsoft Corporation was founded in 1975 and is based in Redmond, Washington.

? When Microsoft announced that it would

acquire Skype Global S.A.R.L., the leading

Internet telecommunications company for $8.5

billion, there were both positive and negative

attributions about the deal in the media.

Because Skype was founded and

headquartered outside the U.S. (Luxembourg),

Microsoft was able to use cash that was not

repatriated into the U.S. to pay for the deal,

and in so doing, it avoided paying U.S. income

tax.

CHALLENGES:

? Whether Microsoft will be able to utilize

the service and integrate it into its focus on

business customers relative to the consumer

focus of Skype

? Whether Microsoft will be able to

incorporate the Skype service into its various

devices and software platforms

DEFENSIVE RATIONALE

? If Microsoft did not buy Skype, it may

have ended up in the hands of a competitor

such as Google, who might be able to use it to

strengthen its ecosystem at the expense of

Microsoft.

OFFENSIVE STRATEGY

? Google

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