Questions/Discussion

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1. Describe Linear Technology’s payout policy
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Historical record of dividends and repurchases
•
Dividends
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–
–
–
•
Total
Per share
Payout ratio
Dividend yield
Repurchases ($)
2. Analyze Linear’s financing needs. Should Linear
return cash to its shareholders?
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–
Profitability vis-à-vis investment needs
Reasons for/against returning cash to shareholders
•
•
Taxes
?????
1
3. If Linear were to pay out its entire cash balance as
a special dividend, what would be the effect on
the share price? On earnings? On number of
shares outstanding? On earnings per share?
What if Linear repurchased shares instead?
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–
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Assume a Modigliani and Miller world: no taxes, no
agency costs, perfect information, no transactions
costs
Assume the company will use $1.5 billion of cash. The
cash earns 3% interest income if the company keeps it.
Hint: Earnings for 2003 are only for the first 3 quarters.
You need the earnings for the full year (i.e. 4 quarters)
2003.
2
4. Why do firms pay dividends?
–
Refer to class notes
5. What should Paul Coghlan recommend to the
board?
3
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