Dividend Policy at Linear Technology

Study Guide

Each group should write down the answers to the first 3 questions and hand them in

at the beginning of the class the day of the presentation.

1. What is Linear’s current payout policy?

2. What are Linear’s financing needs? (check the cash flows and investment
(exhibit TN-1) and the cash balances (Exhibit TN-2)

3. What should Paul Coghlan recommend to the board? Why?

Note, to answer this and the next questions you need to analyze:
Tax implications.
Assymmetries of information
Agency problems?
Consider also the effect of stock-options on the decision.

The following questions also are study material for the examinations. You do not

need to answer them in your group-homework .

4. What are the advantages and disadvantages for the firm’s shareholders if:
a) The firm increases dividends.
b) The firm maintains the same amount of dividends
c) The firm cuts dividends.

5. What will be the market reaction to each of the three actions described in the
previous question? Why?
6. If you were the manager acting in the interest of the current shareholders, what
would you do? (This question need to be addressed by start describing the
potential advantages and disadvantages of the different alternatives, and then
provide a subjective, but educated, answer.

7. Would your answer to the previous question change if managers act in their own
interest?