Infomatic Specialists Inc. (ISI), which develops software for the health care industry, was founded five years ago by Juan Benitez and Peggy Stark, who are still its only stockholders. ISI has now reached the stage where outside equity capital is necessary if the firm is to achieve its growth targets yet still maintain its target capital structure of 60%equity and 40% debt. Therefore, Benitez and Stark have decided to take the company public. Until now, Benitez and Stark have paid themselves reasonable salaries but routinely reinvested all after-tax earnings in the firm, so dividend policy has not been an issue. However, before talking with potential outside investors, they must decide on a dividend policy.
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