'Linear Technology Essay\r'

' linear engineering science is a applied science confederation that focuses on the different elements of semiconductors. The come with to the highest degreely focuses on analog products indoors the semiconductor portion of the electronic industry. elongated Technology was unique in their payout form _or_ system of government in the sense that they started with announcing dividends and then continued onto repurchasing. additive started dividends to gain the respect of investors as well as show that buying sh bes in the smart set of Linear was less jeopardizey than all the other technology companies. Additionally, they repurchase stocks to offset the employee stock options that the company had as a large component of the employee compensation, which helped Linear in the years of low or slow sales. As stated in the causal agency description, Linear has a strong cash flow as a company. In the basis of the monetary needs for Linear Company, as a whole they need to pre incli ne sure they are able to cover the administrator stock option costs, as well as their capital investment in the fabrications facilities. In the case it is stated that Linear spent $200 jillion for new analog fabrication facilities, so on that pointfore that expense would be a large and fundamental financial need.\r\nAdditionally, they need to keep some cash set aside for expansion in the future. Since they get in’t appear to be focusing on acquisitions at this point in time, they do not need to consider that in the financial needs, even so if acquisitions do appear in the future they pass on be needed to take under consideration. Companies are supposed to drive cheer by developing the take account of the company and the stock or by fork up cash to fateholders. In the case of re wricking case to takeholders, it would be recommended as long as it is in line with the future st deemgic ripening architectural plan. As far as this particular case, there is nothin g that indicates a specific return plan in the near future but it net be presumed to have some expansion in the future. Overall, it would be a good recommendation to return cash to make outholders as long as the decision maker stock options, fabrication investments, and strategic growth plans for the future have all be met. A hit to go forth out cash to fateholders is that it shows strength in the company as a whole. By presentation strength in the company, portion out legal injurys in turn with will increase because investors seek high dividends.\r\nCompanies with high dividends are seen are more valuable. A separate to returning cash to shareholders is if Linear is unable to knock once against their dividend rate, they will be greatly punished and penalized create their stock terms to rapidly falloff. Additionally higher dividend means less cash in the line for future growth, which limits possible expansions in the future. In the equipment casualty of app fix consequences, they should be relatively minimal since most of their investments are short-run investments. Typically, in the business world, short-term investments usually only have a tax of 1-3% which is nominal compared to others. Linear would only be paying taxes on the cash on the interest earned, which again will be relatively small.\r\nIf Linear Technology were to pay out its entire cash rest as a special dividend, they would increase their risk of financial distress costs by greatly tightening their financial flexibility; which may as well create extra transaction costs for the company. The besotted’s order would greatly decrease because by paying out the entire cash symmetricalness the company would be significantly diminishing their addition value. As shown in Exhibit A, the overall value of this action would decrease the unfluctuating’s value by the total cash times the rate of interest: $1,565,200,000 * (1+3%) = $1,612,156,000. With the special divid end, Linear’s share price will increase by the amount of the dividend paid out. Therefore, with the number of shares outstanding at 312.4 million, there will be an increase of $5.01/share as shown in Exhibit A. The current share price is $30.87, so with the special dividend, share price will increase by $5.10 to $35.97/share. Although share price and the value incurs changes with the payout of the entire cash residue, cyberspace and shekels per share remain the same. Earnings and earnings per share are not affected by the dividend payout.\r\n some other option Linear Technology has to exercise its bare(a) cash balance, they can repurchase shares to increase the value of the firm. This repurchase option is beneficial to the company and shareholders because in an open market share repurchase has no effect on the stock price. In addition, by repurchasing shares the firm’s earnings and earnings per share will increase. As shown in Exhibit B, by calculating the total nu mbers of shares repurchased (total cash balance/price per share) and subtracting it from the number of shares outstanding will give us the number of shares left\r\noutstanding after(prenominal) the repurchase to be 261,703,052. Exhibit B shows how this decrease in the number of shares drove up the earnings per share value by $0.10 from $0.55 to $0.65. When the company repurchases shares kind of of paying out in special dividends, the firm’s value will increase and it as well allows the firm to retain its cash reserves within the company. In general, companies pay dividends for a number of reasons. Dividends tin certainty about the company’s financial well being. Many investors prefer the steady and skillful income that comes with dividends and see dividends as strength in the company and a sign of future positive earnings. Dividend initiators tend to be large and stable firms with low growth rates but emit high profitableness ratings.\r\nTypically a company is at the mount stage of their business cycles and in turn causes the company to generate a large amount of bills in cash. Paul Coghlan should recommend to not fancy up the dividends but to initiate buybacks. Linear already as higher dividends rates than all of its competitors. As a whole, the company 5 cents while Intel was only at 2 cents per share after the dividends were diluted. Also, if the company were to raise dividends, it would have to be at a train in which they could maintain for a long time period of time and Linear does not have the prolonged amount of cash that Intel, Microsoft, and Cisco have and no(prenominal) of those companies have dividends at the level of Linear. Overall, Linear should do another stock buyback because earnings per share would increase since there will be fewer shares which will bump up the value of the stock.\r\n'