Linear Technology Essay

one-dimensional Technology is a technology fraternity that focuses on the different elements of semiconductor units. The connection mostly focuses on additive products within the semiconductor portion of the electronic industry. Linear Technology was unique in their pass onout indemnity in the sense that they started with announcing dividends and then continued onto repurchasing. Linear started dividends to gain the mea surely of investors as well as show that buying shares in the high society of Linear was less risky than alone the other technology companies. to boot, they purchase stocks to off position the employee stock picks that the company had as a bountiful helping of the employee compensation, which helped Linear in the years of low or slow sales. As stated in the font description, Linear has a strong bills flow as a company. In the basis of the financial inevitably for Linear Company, as a whole they need to make sure they are able to cover the executive dir ector stock option costs, as well as their capital investment in the fabrications facilities. In the case it is stated that Linear spent $200 million for new analog fabrication facilities, so in that locationfore that expense would be a large and important financial need.Additionally, they need to keep some money set aside for expansion in the rising. Since they dont come in to be focusing on acquisitions at this point in time, they do not need to consider that in the financial needs, however if acquisitions do appear in the future they will be needed to take nether consideration. Companies are supposed to drive survey by growing the respect of the company and the stock or by returning property to shareholders. In the case of returning case to shareholders, it would be recommended as long as it is in line with the future strategic gain plan. As farther as this particular case, there is nothing that indicates a specific growth plan in the near future but it can be presumed t o tolerate some expansion in the future. Overall, it would be a come on recommendation to return cash to shareholders as long as the executive stock options, fabrication investments, and strategic growth plans for the future spend a penny all be met. A benefit to paying out cash to shareholders is that it shows authority in the company as a whole. By showing qualification in the company, share damages in turn with will increase because investors look for high dividends.Companies with higher dividends are seen are more valuable. A detriment to returningcash to shareholders is if Linear is unable to meet their dividend rate, they will be greatly punished and penalized causing their stock price to rapidly slack. Additionally higher dividend means less cash in the business for future growth, which limits possible expansions in the future. In the terms of tax consequences, they should be relatively minimal since most of their investments are short 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 rice beer earned, which again will be relatively small.If Linear Technology were to pay out its constitutional cash balance as a peculiar(prenominal) dividend, they would increase their risk of financial distress costs by greatly tightening their financial flexibility which may also create peculiar(a) transaction costs for the company. The firms value would greatly decrease because by paying out the entire cash balance the company would be significantly diminishing their asset value. As shown in parade A, the overall value of this action would decrease the firms value by the total cash times the rate of interest $1,565,200,000 * (1+3%) = $1,612,156,000. With the special dividend, Linears share price will increase by the amount of the dividend paid out. Therefore, with the effect of shares striking at 312.4 million , there will be an increase of $5.01/share as shown in endanger 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 balance, dough and honorarium per share remain the same. Earnings and earnings per share are not affected by the dividend payout.Another option Linear Technology has to exercise its excess 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 firms earnings and earnings per share will increase. As shown in Exhibit B, by calculating the total numbers 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 leftoutstandin g subsequently 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 instead of paying out in special dividends, the firms value will increase and it also allows the firm to retain its cash reserves within the company. In general, companies pay dividends for a number of reasons. Dividends fork over certainty about the companys financial well being. many investors prefer the steady and secure 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 let on high profitability ratings.Typically a company is at the mature stage of their business cycles and in turn causes the company to generate a large amount of money in cash. Paul Coghlan should recommend to not have words the dividends but to initiate b uybacks. Linear already as higher dividends rates than all of its competitors. As a whole, the company 5 cents part 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 level in which they could take for a long period of time and Linear does not have the extended amount of cash that Intel, Microsoft, and Cisco have and none 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 less shares which will bump up the value of the stock.