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 Help

Referring to the income statement of the company provided in the case; the growth and revenue were stable over the period of time; regardless of the significant drop in sales for the year 2001. However, the company had a profitable increase in its net income from $1291 in 2001 to $3117 in 2002. Despite of the significant economic downfall; the company had managed to obtain a positive cash flows and net income because of its relatively lower financing needs and limited cost set up. The company focused on the analog semiconductor and had a stable and modest cost of research and development. Since the semiconductor industry is characterized by high capital investment, high research, development cost and cost incurrence on retaining the top talents; the company was only focused towards analog semiconductor and competing with Analog Devices, Maxim and National Semiconductor.

Separately from conferring the financing needs of the company from the internal factors; the financing need of the company could be adversely affected by the market risk, such as the US declaring war against Iraq and there were also uncertainties regarding how it would last impact on the economy of US and abroad as a whole. This might call for reserving a high cash balance to deal with the unfavorable external environment. Overall, the company should’ve hold the excessive cash reserves. (Petersen, 2020).

In the event that the organization chooses to hold the money saves; it would permit the organization to put the money in possible and suitable ventures with positive net present worth, empowering it to create solid benefits returns. Not just this, it would likewise empower the organization to manage the money just as financial trouble. Subsequent to considering the results of the two choices of either returning money to investors or not; the organization is informed to abstain from returning full sum with respect to $1.5 billion to the investors in light of the current financial conditions that are convincing the organization to hold enough money to the spread the startling costs. Thusly, the organization would have the option to put resources into development openings and produce solid incomes after some time, in the exceptionally serious market field.

The organization could return money to the investors as the repurchase on account of the way that the normal deals for the year 2003 shows a decrease in deals, for example, $47 million when contrasted with the past $54 million out of 2002, which shows that returning money back to investors as profit would carry numerous difficulties to the organization. Repurchasing of stock would be the achievable choice as it would decrease the number of extraordinary offers and would likewise lead towards a critical increment in income per offer and stock cost. Also, regarding the official pay choice; the repurchase would almost certain instigate more an incentive than what profit would expand, which ought to be considered as a result of the high necessity of specialists or ability in the serious market.

In the event that the organization chooses to keep the money saves as opposed to paying out to its investors; the organization would persevere through some expense with respect to the duties. One of the more prominent advantages of holding money inside the organization is that the organization would have a liquidity, required to make interest in the undertakings. Regarding the expense outcomes; it would be wasteful for the organization to not go into the capital markets to raise the fund as a result of the duty deductibility and installment of enthusiasm on turning. The organization ought to viably decrease the duty installment by expanding the installment to representatives and innovative work, with the utilization of the incomes produced from deals, along these lines lessening the incomes. Another method of decreasing the expense is to fund the undertaking with obligation and appreciate tax breaks as it is less expensive wellsprings of financing when contrasted with the value financing.

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 accessible money, the organization needs to hold some segment of its money as a pad for the monetary strife. The organization would likewise need to put some trade out misusing the open doors accessible in the market, so as to create sound benefit returns and repurchase partakes so as to give comes back to its investors or financial specialists in view of the way that the repurchase of stock would lead towards a huge increment in the acquiring per share just as the cost of offers.(Edmans, 2017).

Conclusion

Linear Technology involves in producing and designing the custom-design integrated semiconductors (circuits) for electric applications in the computer, telecommunication and the automotive industries. It is the seventh biggest organization recorded on SOX (Philadelphia trade semiconductor list). In the monetary year 2002; the organization encountered its first huge decrease in quite a while deals since its 1986's IPO. The deals of the organization had dropped by 47 percent and its items had a fall of 54 percent. The current payout strategy of the organization depends on two techniques, including: stock repurchase and profit payout. In spite of the critical monetary defeat; the organization has figured out how to get positive incomes and net gain, as a result of its generally low financing needs and constrained cost set up. On the off chance that the organization delivers profit; the income of the organization will be determined as $184.23 million, though its profit per offer will be 0.58. On the off chance that the organization repurchases the stock, its profit would be determined as $184.23 million; though its income per offer would be 0.70...............................

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