Newbrook Ltd is a small public company that operates two
Newbrook Ltd. is a small public company that operates two mines in northern Canada. The mining industry is highly cyclical, with the success of companies like Newbrook dependent on the price of the commodity they mine. Newbrook’s existing mines are well established and produce reliable amounts of resources at a reasonable cost. The company is continuing exploration for new potential mines but its capital expenditures are mainly due to replacing and upgrading assets at the existing mines. At a recent executive management meeting, it was proposed that the company pay a dividend for the first time. The proposal was made because the company was coming off its most successful year in its history in terms of net income and cash flow and the company’s cash reserves are at an all-time high. The chief financial officer reminded the group that paying a dividend was a big step and once paid it was unwise to reduce or eliminate a dividend because the stock price would be significantly affected in a negative way. The proposal is to declare an annual dividend of $0.10 per share. The company has 10 million shares outstanding.
You have been asked to examine Newbrook’s cash flow statements for the last four years and to prepare a report assessing whether it makes sense to pay a dividend at this time.

Prepare the report requested by the management executive committee. In your report, consider whether Newbrook can afford a dividend, whether the $0.10 is a reasonable annual dividend or if a dividend should be paid whether the amount should be greater or less than the proposed $0.10 pershare.
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