...CASE STUDY: Linear Technology team 6 2005120111 Lim jinchul 2010150013 Lee hyeyeon 2010150028 Choi eunyoung First, Linear have paid stable dividends to shareholders since 1992. They initially set the dividend at a relatively low level. By setting the dividend at a low level, Linear could maintain a sustainable payout ratio. Also, shareholders come to expect dividends once a company starts paying it. If the company pays a dividend less than the expected dividend amount, shareholders will be frustrated. Linear’s management believes that paying dividends appeals to potential investors, who both focus on the growth of the firm and interests in steady income. They also thought that providing dividends gives a positive signal to the investors in the way that Linear have the capability to generate positive cash flows even in a tough times. Second, Linear repurchased the stocks with company’s positive cash flows. There are three reasons why the company prefers to buy back stock. First, the company can offset the dilution effects caused by exercising employee stock options. Second, it is better to return additional cash to shareholders in the form of share repurchases, because interest rate is low for the last few years. So using the cash-at-hand to buy back shares makes a better use of cash balance. Third, despite a large cash balance there were no...
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...Case Analysis 3: Linear Technologies Payout Policy, Tax Considerations, Cash Retention and Information Asymmetry Christopher Mafi 22996 Karl Bokvist 23020 Oscar Bjurviken 23082 Edwin Olsson 23106 Executive Summary Linear Technologies has throughout the years experienced high growth in both revenue, net income and in cash. Despite declining sales, margins have remained high and Linear by comparison to other companies has the financial possibility to increase its dividend to higher levels than what it currently is today due to a current cash-to-market cap of 16,23%, zero long-term debt and a low dividend yield of 0,49%. The cash balance has a current effective tax disadvantage of 23,50% while investors would prefer to have the cash distributed through a share repurchase due to the tax being paid later on when the investor’s capital gain is realized. An increased dividend would be a credible signal to investors of a strong belief in future success while a clientele effect from paying a dividend would attract certain investors such as European mutual funds. Agency problems are also reduced through a dividend since less cash is available for unattractive investments while CEO Robert Swanson’s options decrease in value, hence indicating CEO’s belief of long-term company success above shortterm option value. Linear should therefore reduce its cash balance by paying out 1/3 in dividends and 1/3 in share repurchases while keeping 1/3 for future investments. Payout...
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...risk-averse income seeking investors. Some large institutional investors such as mutual funds often will only invest in firms that pay dividends. Moreover, more mature companies will pay dividends from extra cash if the return they would be able to generate on new investment projects is less than the return shareholders are able to obtain by investing their money elsewhere. And finally, due to the signaling to investors who like dividends, it is difficult for companies to cut dividends without adversely affecting the firm’s stock price because cutting or not paying dividends would be interpreted as a negative signal about the firm’s future prospects. 3. LT is considering increasing dividends in the 4th quarter of 2003. Is Linear Technology in a financial position to consider a dividend increase (particularly in light of the sharp decline in sales and profits in fiscal year 2002)? The past historical trend of LT’s dividend increases shows an increase of $0.01 each year. If LT would increase its dividend by another $0.01 it would result in a $0.06 dividend quarterly, or...
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...1. Yes. Robertson Tool Company had been going through a few years of low sales and profit, and, coupled with conservative financial and accounting practices, was far behind the normal growth rate for companies in its industry. Robertson’s 50% control of the market for clamps and vises, along with its good position in the scissors and shears’ $200 million market, let it compliment the diverse holdings of Monmouth. These are attractive attributes of Robertson, but the selling point lies in the distribution network consisting of 2,100 wholesalers and 15,000 retail outlets. The Robertson products are sold in 137 countries worldwide. This avenue to market Monmouth and Robertson products across resources could lead to above average growth and profits. 2. What is the maximum price that Manmouth can afford to pay: a. DCF base: i. WACC 1. Unlevered Equity Beta – 0.725 2. Market Value of Debt - $12m 3. Market Value of Equity - $25,696m 4. Debt/Capital - 32% 5. Levered Equity Beta – 0.86 6. Risk Free Rate – 4.10% 7. MRP – 6% 8. Cost of Equity – 9.28% 9. Cost of Debt – 6.07% on BBB rating 10. Tax Rate - 40% 11. WACC: a. Debt – 31.8% @ 3.64 b. Equity – 68.2% @ 9.28 c. WACC = 7.5 ii. Terminal Value - TY FCF = $4.9m*(1+0)/(0.075-0) = $65.33 iii. FCF:...
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...------------------------------------------------- Re: Changes to Dividend Policy at Linear Technology ------------------------------------------------- The purpose of this memo is to provide a recommendation to Paul Coghlan, CFO of Linear Technology, regarding adjustments to the company’s dividend policy. Linear Technology’s current dividend policy yields a higher than average payout ratio and sets them apart from other technology firms. The firm’s financial data for the past five years as well as data from other semiconductor companies was analyzed to support the following recommendation. To appease shareholders and analysts and reduce cash on the balance sheet, Linear Technology should continue the stock repurchase program and increase the 2003 Q4 dividend to $0.06 per share. What does Linear Technology do? Linear Technology’s business focuses on high-performance analog integrated circuits with a business model of a complete analog focus and cream-skimming the high-margin part of analog. Linear Technology uses a low-maintenance model with a variable cost structure. It designs, manufactures and markets its broad line of products for major companies. The competition in the analog segment is fierce, with companies like Maxim, Analog Devices and National Semiconductor leading the market. Maxim is the closest competitor in terms of size and financial performance. How has Linear Technology done? Linear Technology has done wonderfully until the end of 2001, thanks to low cost of capital...
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...------------------------------------------------- Dividend Policy at Linear Technology Linear Technology (LT) was founded in 1981 in California by Robert Swanson. The company went public on the NASDAQ in 1986. Linear Technology manufactures custom-design integrated circuits (semiconductors) for electronic appliances in the telecommunication, computer and the automotive industries. It is the seventh largest company listed on the Philadelphia Stock Exchange Semiconductor Index (SOX). The success of Linear Technology depends on the top of the line engineers and developing high performance products. In 2003, Janus Capital Management was the largest single holder of LT stock. Linear Technology payout policy consists of dividend payout and stock repurchase. LT announced its first dividend on October 13, 1992. The factors contributing to this first dividend payout were the top expectations for the company, a top position in the technology industry and positive cash flows since the company went public. At the time of their first dividend payout, the company seemed to hold a strong position in a very risky market. The company seemed to be growing and maturing. The payout ratio from 1992 to 2002 had been growing at a steady rate, reaching 25% in 2003 (Exhibit 3). A consistent dividend payout seemed like the best option due to the low interest rates offered by LT’s high grade security investments. In addition, the company did not have any plans to make acquisitions, which meant that...
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...Dividend Policy at Linear Technology Firms pay dividends for a multitude of reasons, such as the ability to make use of excess cash that stockpiles when a firm lacks enough viable investment opportunities with positive NPVs. Paying dividends can also send strong signals to investors of positive future earnings while rewarding them with immediate cash returns. From the market’s perspective, merely sending statements that a company is financially healthy doesn’t hold much weight. However, when a firm undertakes the costly action of issuing cash dividends, the message the firm sends is much stronger and more believable. It shows a certain level of expected financial stability since the markets expect dividends to be paid out consistently once they have been declared. While dividends have always been a popular way of distributing money to investors there has been a strong decrease in their issuance since 1978. Back then, about two thirds of publicly traded companies in the United States paid dividends. However by 1999 this number dropped to about one fifth of firms. The main reason for the decline was that until the new tax laws in 2003 passed, top bracket taxpayers paid a capital gains rate of 20%, while being taxed at 38.6% on their dividends. Therefore, paying dividends seemed to be an inefficient use of a firm’s cash and made these stocks less attractive to wealthy investors. Instead many firms favored stock repurchases. In addition, the trend away from dividends could be...
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...Financial Management Assignment Linear Technologies Case Solution 1) Describe Linear Technologies pay-out policy. As we can see from Exhibit 1 Linear Technology has been paying dividend steadily since 1992. Thus the pay-out policy is a large part in dividends. Its first dividend is paid in 1992. The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory. Also analysing the numbers we see that Linear started its dividends with a low payout ratio of around 14.6%. It is known from general trends that investors out faith in early dividend paying firms but punish them if the company reduces its dividend over time. The management of Linear Technologies knows this fact and have increased the dividend over the years. Linear started with a modest pay-out of $0.00625 dividends/share but then increased its dividends steadily by $0.00125 every four quarters. After 2000 it increased this by $0.01 every year. In quarter 3 of 2003 Linear Technology paid a dividend of $0.05 with a pay-out ratio of 27.6%. Even after the tech bubble burst in 2002 the firm has increased its dividend thus signalling to the investors its strength. At this...
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...CASO PRÁCTICO: DIVIDEND POLICY AT LINEAR TECHNOLOGY Conceptualización del problema En el 1981 Linear Technology fue fundada por Rober Sawson en California, esta compañía se dedica a diseñar, fabricar y comercializar circuitos integrados. Por capitalización de mercado Linear ocupa el séptimo lugar dentro de su segmento. En 1986 Linear empezó a cotizar en NASDAQ y desde ahí ha dividido sus acciones cuatro veces. Dentro de los datos financieros del año fiscal se destaca el crecimiento sostenido que presenta Linear entre 1992 y 2001, siendo este ultimo año donde se alcanza un nivel muy alto en ventas logrando así unas cifras imposibles de repetir. Dentro de su política de dividendos, Linear paga dividendos y hace la recompra de acciones. La primera la utiliza cada trimestre desde el 13 de octubre de 1992 cuando anuncio el pago de $0,05 por acción. Para el año 2002 la gerencia y la junta directiva de Linear determinaron realizar un aumento en los dividendos, cosa que busco señalar al mercado que Linear era una compañía rentable y que además de esto contaba con un flujo de caja positivo. Todo esto a razón de que la ventas para ese año bajaron un poco mas del 50% en comparación con el año inmediatamente anterior. Reseña del histórico de los dividendos Análisis de los requerimientos de recursos y su disponibilidad en la firma Linear gracias a su estructura de costos variables pudo afontar la caída de ventas que tuvo VER CUADRO Costos y beneficios de la retención...
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...What is Linear Technology Current Payout Policy? Linear Technology (LT) is like many firms where it used a combination of dividend payments and share / stock repurchases to distribute cash to its shareholders. With a cash dividend, cash is paid directly to shareholders while, with a stock repurchase, a firm uses its cash to buy back its own shares from the market which in turn reduces the number of outstanding shares (Titman and Keown et al., 2011). LT wanted to be able to attract different dividend clienteles of investors which have the both income goals and growth goals (Baker and Wagonfeld, 2004). As stated in the article provided, LT is a developer and manufacturer of analog semiconductors and in 1992 it initiated dividends (Baker and Wagonfeld, 2004). The firm’s Chief Financial Officer, Paul Coghlan, described this decision as being based on the fact that LT was very well positioned within the industry and that the firm had promising expectations for its business within its flourishing market (Baker and Wagonfeld, 2004). He also highlighted that LT had positive cash flows ever since its IPO and so by paying dividends to its shareholders they would send a stable and confident message of appeal to potential investors in a relatively risky market (Baker and Wagonfeld, 2004). The firm primarily set their quarterly dividend at a relatively low price of US$0.0625 per share and, with a Net Income of US$36.4 million in its 1993 Fiscal Year, only US$5.3 million was paid as dividends...
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...Dear Board Members, I feel great responsibility in sending this memorandum to you all, as my recommendation could and most probably would have an impact on our company’s future. It has indeed been a hard decision to make, but through careful analysis, I have reached the conclusion that it would be best to keep the dividend as it is now. Before I brief you on the specifics of my decision, I feel the need to provide basic information about our company that surrounds this issue. To be more specific, I am referring to the past decisions on our dividend policy and our financing needs. Even if you are already aware of the specifics, please bear with me as this has played a crucial role in my decision. Our company has generally had two different payout policies: the dividend payout and the stock repurchase. Our company has first started paying out dividends in 1992, when we had good expectations regarding the analog circuits market. The initial price of dividend per share was $0.05, which accounted for only 15 per cent of the total earnings; since then, the payout ratio steadily increased, getting close to 25 per cent in 2003. In terms of stock repurchases, we have sporadically repurchased stocks between 1993 and 2001, in order to offset the exercise of employee stock options. We have since then repurchased stocks quarterly, but with no distinct pattern. Taking both elements into consideration, it can be said that our company’s payout policy has generally satisfied the shareholders...
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...self-driving cars. Technology is changing the way we think all the time. We are more connected to each other than ever before. We can see and do things that other people before us would only dream about. The use of technologies can change the world. One would suppose that these tools would be used to gain an understanding of cultures, meet individuals everywhere on the planet, have relationships with family and friends, communicate effectively with others, and facilitate individuals to become more social. However, some technological advances can cause individuals to be distracted and stressed. It seems like technology is affecting us in good and bad ways. How is technology changing the way we view data? We seem to be processing data at a faster rate than before. As Larry Alton, of Social Media Weekly explains, “The internet has actually changed the way we, as a society, read. Instead of consuming content in a linear fashion like the generations before us, we now scan for keywords, search for links, and grab small bits of information.” What took people hours to find in thousands of books, is now done in seconds on Google. Information is hard to hide in the internet era. As information is readily available, what will it do...
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...As information and communication technology advances, it has continued to change the world around us and the way that we interact with each other. While the development of new technologies has its advantages, there are disadvantages associated with these developments as well. No doubt, technology is moving our world into the future; which I believe is heading towards a combination of a utopian and dystopian society. In the reading by Marshall McLuhan, Understanding Media, McLuhan makes the argument that humans participate in “hot” and “cold” media, which are described as scale measuring the extent that people interact with media, with “hot” requiring less participation compared to “cold” which requires more effort and participation on the part of the consumer. I believe that “hot and...
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...Session 13 - Homework Problems Miguel Faundez Chapter 13 13.4 Answers a) The scatter plot shows a positive linear relationship. b) For each increase in shelf space of an additional foot, weekly sales are estimated to increase by $7.40. c) Y=145+7.4X=145+7.4(8)=204.2, or $204.20. 13.5 Answers a) From the scatter diagram, we can see that there exists positive relation between reported and audited magazine. b) The slope, B1=26.724 implies that for a unit increment in number of reported magazines, there will be 26.724 increment in the dependent variable, Audited number of magazines. c) The predicted audited newsstand sales for magazine that report newsstand sales of 400,000(X=400) is audited=0.5718+26.724x400=10690.1718. 13.16 Answers a) 20,535/30,025=0.684. 68.4% of the variation in sales can be explained by the variation in shelf space. b) √9,490/10=30.8058. c) Based on a) and b), the model should be useful for predicting the labor hours. 13.17 Answers a) r2 = 130,301.41/144,538.64 = .901498796 This means that 90.15% of the variation in audited sales is explained by the variability in reported sales. b) Formula = SST = SSR + SSE SST-SSR = SSE 144.538.64 – 130,301.41 = 14,237.23 SSE = 14,237.23 SYX = √SSE/ (n – 2) = √14,237.23/ (10 – 2) = √1779.65 SYX = 42.1859 c) This regression model is very helpful in predicting audited sales 13.24 Answers a) A residual analysis of the data indicates a pattern, with sizable clusters of...
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...been changing in several areas and trains are no exception, so today there are two modern fast models: magnetic levitation( maglev) trains and high-speed rail( HSR) trains. This paper was written to analyze the possibility of the maglev trains to replace the HSR trains by considering different aspects. 2. Rationale: In digital age, developing industry and technology sector leads to progressing climate change. Maglev and HSR trains are the new models to make life easier and avoid the global warming. It’s important to determine the best choice for people, which travel and immigrate because the developed transport system can decrease CO2 emissions. As a student...
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