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 ?????
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.
4. Why do firms pay dividends?
– Refer to class notes 5. What should Paul Coghlan recommend to the board?