Dividend Decision at Rolls-Royce (Part A)

In November 2015, Rolls Royce Holdings PLC (Rolls-Royce) issued its 5th profit warning in a span of 20 months. Warren East (East), CEO of Rolls-Royce said earnings were expected to be lower by £650 million in 2016 and the company was contemplating a dividend cut in the near future. The shares of Rolls-Royce plunged 20% to £536.5 on the same day, the biggest share price drop for the company in 15 years. East, appointed CEO of Rolls-Royce in July 2015, had been given a mandate by the management to turn the company around. He had planned to simplify Rolls-Royce’s organizational model, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making. He planned to preserve cash through savings measures in the near future. East was firm about his decision on job cuts however he was skeptical about the dividend decision...