Sunday, March 3, 2019
Linear Technology Essay
1. Describe linear Technologies pay out(p) form _or_ system of government.Linear technology announced its commencement exercise dividend on October 13, 1992 in order to portray Linear Technology as a less risky sure than other technology companies that did non pay dividends and to gain access to new investors participationed in earning income in addition to investing in ripening. Linear Technology initially think to begin with a relatively low dividend of $0.05 per packet which amounted to a 15% earnings payout ratio mindful of the fact that investors abhorred ho single-valued functions that reduced or halt their dividend payment schedule. Beginning more conservatively than their original estimates, Linear Technology began with a $0.00625 dividend per character.Linear Technology has steadily increased its dividend per per centum change magnitude the payout approximately every four quarters by $0.00125. This rule was maintained from Q2 1993 to Q3 2000. Beginning in Q4 2000, Linear Technology began increasing its dividend per share by a new pattern of $0.01 increases per four quarters. The current dividend per share is $0.05 during Q3 2003. Its current dividend acquit of 1% is relatively high than the average dividend yield rove for Information Technology unshakables in the S&P 500, almost 0.3%.2. What are Linears financing needs? Should Linear turn over cash to tis shareowners? What are the tax consequences of keeping cash inside the firm?Linear Technologys financing needs are to hone its cash flow, investments, and cash balances in order to maximize its shareholder values. Linears cash balance in March 2003 stood at somewhat $1.5 billion, which was being conservatively invested in short-term debt securities. The cash flow from these investments, the interest income, was around $52 million.Due to the tax cuts implemented by the crotch hair administration, the tax rate on dividends and capital gains were greatly reduced. The dividend ta x rate dropped from an approximate 38% and the capital gains tax dropped from an approximate 20%. more(prenominal) important that the magnitude of the tax cuts, however, is that the capital gains tax was equalized with the dividends tax. When the dividends tax is higher than the capital gains tax, the optimal dividendpolicy is to pay no dividends. In this situation, the firm will use share repurchases instead in order to shoot down advantage of tax savings. Before the tax cuts, the firm has less incentive to raise funds for dividend payouts due to the higher tax rate on dividends and the ban effect on shareholders. However, with the equalized tax rate of 15%, the firm is no longer discouraged from raising dividends.3. IF Linear were to pay out its entire cash balance as a special dividend, what would be the effect on value? On the share price? On earnings? On earnings per share? What if Linear repurchased shares instead? film a 3% rate of interest.4. why do firms pay dividends? Why has the rate of dividend initiations changed over time?Firms pay dividends for several reasons despite the MM proposition that characterizes dividend policy as irrelevant. One main reason for dividend policy is based on the managers belief that investors prefer horse barn dividends with sustained growth. This kind of dividend signals to the investor the firm has reached a steady state growth i.e. a mature market position. A company usually altogether begins to consider releasing dividends once it has established regular and predictable trading operations cash flows. However, dividends can also act as a negative signal telling investors that the firms growth rate is slowing. change magnitude the dividend can, on one hand, signal the managers perspective for futurity growth and optimism over future cash flows on the other hand, increasing the dividend can also signal a lack of investment opportunities. The use of dividend payouts has steadily decreased over the last 30 years. This trend is in part related to the changes in dividend tax rate, however, I believe the legal age of this trend or trends can be attributed to changes in investor preferences. The dividend payout decision is at long last chosen by a manager, whose main objective is to satisfy shareholder preferences.
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