Dividend Policy at Linear Technology Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Dividend Policy at Linear Technology Case Study Solution

Assuming the 3 percent rate of interest; the earnings per share, price per share and the earnings of the company are calculated under both scenarios of returning back cash to the shareholders in shape of dividends and repurchasing of stock.As per the information provided in the case,under the situation of paying the entire cash in dividend to the shareholders;the number of outstanding shares would be 312.4 million.Whereas, the value per share would be $30.87. Thevalue per share is multiplied with the number of outstanding shares to get the market value of $9643.788 million dollars. The current earnings per share is calculated by the net income of $170.6 by the number of outstanding shares, which resulted in 0.54 dollars. The dividend that the company would pay to its shareholders will be5.01, which is calculated by the cash and short term investment of $1565.2 million by the number of outstanding shares. The price of the share after paying dividend is $35.88, which is calculated by adding the value per share of $30.1 and paid dividend of $5.01. Additionally, the earnings of the company is calculated to be $184.23 million; whereas the earnings per share is calculated as 0.58.

Under the situation of paying the entire cash to shareholders as a repurchase; the number of outstanding shares will be 312.4 million;whereas, the value per share is $30.87. Thevalue per share is multiplied with the number of outstanding shares to obtain the market value of $9643.788 million dollars. The current earnings per share is calculated the net income of $170.6 with the number of outstanding shares, which resulted in 0.54 dollars. The number of shares repurchased are calculated by cash and short term investment of $1565.2 million by value per share of $30.87. Afterwards, the new number of outstanding shares is calculated by subtracting the number of shares repurchase from the current number of outstanding shares. The price of the share after paying cash to shareholders as a repurchase,is $36.85, which is calculated by dividing the market value by new outstanding shares. Additionally, the earnings of the company is calculated as $184.23 million, whereas the earnings per share is 0.70.

In addition to this, the analysis shows that the price of share reduces if the company opts to give dividend to its shareholders; whereas the stock price would increase if the company repurchases the stock. Additionally, the earnings per share of the company is greater under the scenario of repurchasing the shares, which is because of the fact that the repurchase reduces the number of outstanding shares and the price of stock would increase because the shareholders know that the buyback of shares would boost the earnings per share.

Question # 04

After taking into consideration the critical analysisof the available options for increasing the dividend;Paul Coghlan should consider over boarding in order to avoid the increase in the dividends, by diverting his core consideration over maximizing the shareholders’ value. After taking into account theinflexible nature of the dividend and current economic condition; the decision of paying dividend would not be feasible for the company. The company is recommended to repurchase the shares in case of returning the cash back to the shareholders, otherwise it would be wise for the company to invest the available cash into the revenue generating projects with positive net present value. Currently, the company has not identified any project with positive NPV, due to which the company is recommended tocapture and exploit the available opportunities for tapping the Asian market.

From the available cash, the company needs to hold some portion of its cash as a cushion for the economicturmoil. The company would also need to invest some cash in exploiting the opportunities available in the market, in order to generate healthy profit returns and repurchase shares in order to provide returns to its shareholders or investors because of the fact that the repurchase of stock would lead towards a significant increase in the earning per share as well as the price of shares.(Edmans, 2017).

Conclusion

Linear Technology engages in manufacturing and designing the custom-design integrated semiconductors (circuits) for electronic applications in the computer, telecommunication and the automotive industries. It is the seventh largest company listed on SOX (Philadelphia exchange semiconductor index). In the financial year 2002; the company experienced its first significant decline in its sales since its 1986’s IPO. The sales of the company had dropped by 47 percent and its products had a fall of 54 percent.The current payout policy of the company is based on two methods, including: stock repurchase and dividend payout. Despite of the significant economic downfall; the company has managed to obtain positive cash flows and net income, because of its relatively low financing needs and limited cost set up. If the company pays dividend; the earnings of the company will be calculated as $184.23 million, whereas its earnings per share will be 0.58.If the company repurchases the stock, its earnings would be calculated as $184.23 million; whereas its earnings per share would be 0.70...................................

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