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Describe Linear Technology’s payout policy Historical record of dividends and repurchases

Describe Linear Technology’s payout policy Historical record of dividends and repurchases Dividends Total Per share Payout ratio Dividend yield Repurchases ($) Analyze Linear’s financing needs. Should Linear return cash to its shareholders? Profitability vis-à-vis investment needs

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Describe Linear Technology’s payout policy Historical record of dividends and repurchases

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  1. Describe Linear Technology’s payout policy • Historical record of dividends and repurchases • Dividends • Total • Per share • Payout ratio • Dividend yield • Repurchases ($) • Analyze Linear’s financing needs. Should Linear return cash to its shareholders? • Profitability vis-à-vis investment needs • Reasons for/against returning cash to shareholders • Taxes • ?????

  2. If Linear were to pay out its entire cash balance as a special dividend, what would be the effect on the share price? On earnings? On number of shares outstanding? On earnings per share? What if Linear repurchased shares instead? • Assume a Modigliani and Miller world: no taxes, no agency costs, perfect information, no transactions costs • Assume the company will use $1.5 billion of cash. The cash earns 3% interest income if the company keeps it. • Hint: Earnings for 2003 are only for the first 3 quarters. You need the earnings for the full year (i.e. 4 quarters) 2003.

  3. Why do firms pay dividends? • Refer to class notes • What should Paul Coghlan recommend to the board?

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