1. Describe Linear Technology’s payout policy
– Historical record of dividends and repurchases
• Dividends
– Total
– Per share
– Payout ratio
– Dividend yield
• Repurchases ($)
2. Analyze Linear’s financing needs. Should Linear return cash to its shareholders?
– Profitability vis-à-vis investment needs
– Reasons for/against returning cash to shareholders
• Taxes
• ?????
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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?
– 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.
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4. Why do firms pay dividends?
– Refer to class notes
5. What should Paul Coghlan recommend to the board?
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