Linear Technology Essay

1. Describe elongated Technologies manufactureout policy. one-dimensional technology announced its first dividend on October 13, 1992 in commit to portray Linear engineering science as a less untamed firm than other technology companies that did not gene respect dividends and to gain access to red-hot investors interested in earning income in accompaniment to investing in growth. Linear technology initially planned to begin with a relatively low dividend of $0.05 per fortune which amounted to a 15% bread payout ratio evocative of the fact that investors abhorred firms that reduced or stop their dividend payment schedule. Beginning more guardedly than their original estimates, Linear Technology began with a $0.00625 dividend per share.Linear Technology has steadily increase its dividend per share increasing the payout close to every four quarters by $0.00125. This exercise 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 latest dividend per share is $0.05 during Q3 2003. Its current dividend yield of 1% is relatively high than the average dividend yield pasture for randomness Technology firms in the S&P 500, nigh 0.3%.2. What are Linears financing inevitably? Should Linear legislate change to tis shareholders? What are the task consequences of charge coin inside the firm?Linear Technologys financing needs are to optimize its interchange flow, investments, and cash poises in order to maximize its shareholder values. Linears cash match in March 2003 stood at nigh $1.5 billion, which was being conservatively invested in short debt securities. The cash flow from these investments, the interest income, was around $52 million.Due to the tax cuts employ by the Bush administration, the tax arrange on dividends and seat of government gains were greatly reduced. The dividend tax rate dropped from an approxima te 38% and the superior gains tax dropped from an approximate 20%. to a greater extent important that the magnitude of the tax cuts, however, is that the big(p) gains tax was equalized with the dividends tax. When the dividends tax is high than the capital gains tax, the optimal dividendpolicy is to pay no dividends. In this situation, the firm will ingestion share repurchases instead in order to take advantage of tax savings. out front the tax cuts, the firm has less fillip to raise funds for dividend payouts due to the higher tax rate on dividends and the veto effect on shareholders. However, with the equalized tax rate of 15%, the firm is no monthlong 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? Assume a 3% rate of interest.4. Why do firms pay dividends? Why has the rate of d ividend initiations changed over snip?Firms pay dividends for several reasons despite the MM proposition that characterizes dividend policy as irrelevant. nonpareil main reason for dividend policy is establish on the managers picture that investors prefer stable dividends with sustained growth. This affable of dividend prognostics to the investor the firm has reached a steady country growth i.e. a mature mart position. A company usually all begins to consider releasing dividends once it has constituted regular and predictable operations cash flows. However, dividends pot also act as a negative signal carnal knowledge investors that the firms growth rate is slowing. Increasing the dividend can, on one hand, signal the managers perspective for proximo growth and optimism over future cash flows on the other hand, increasing the dividend can also signal a deficiency of investment opportunities. The use of dividend payouts has steadily reduced over the last 30 years. This bo wel movement is in part related to the changes in dividend tax rate, however, I believe the absolute majority of this trend or trends can be attributed to changes in investor preferences. The dividend payout decision is ultimately chosen by a manager, whose main object is to satisfy shareholder preferences.