In mid-September 2015, Sara Larson, the chief financial officer of this large CAD/CAM (computer-aided design and manufacturing) equipment manufacturer must decide whether to pay out dividends to the firm's shareholders, or repurchase stock. If Larson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves as an omnibus review of the many practical aspects of the dividend and share buyback decisions, including (1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions. This case can follow a treatment of the Miller–Modigliani dividend-irrelevance theorem and serves to highlight practical considerations in setting dividend policy. Excerpt UVA-F-1765 Rev. Mar. 28, 2017 Rockboro Machine Tools Corporation On September 15, 2015, Sara Larson, CFO of Rockboro Machine Tools Corporation (Rockboro), paced the floor of her Minnesota office. She needed to submit a recommendation to Rockboro's board of directors regarding the company's dividend policy, which had been the subject of an ongoing debate among the firm's senior managers. Larson knew that the board was optimistic about Rockboro's future, but there was a lingering uncertainty regarding the company's competitive position. Like many companies following the “great recession” of 2008 and 2009, Rockboro had succeeded in recovering revenues back to prerecession levels. Unlike most other companies, however, Rockboro had not been able to recover its profit margins, and without a much-improved cost structure, it would be difficult for Rockboro to compete with the rising presence of foreign competition that had surfaced primarily from Asia. The board's optimism was fueled by the signs that the two recent restructurings would likely return Rockboro to competitive profit margins and allow the company to compete for its share of the global computer-aided design and manufacturing (CAD/CAM) market. . . .