As you prepare this case for tomorrow, please consider the questions below:
(Note: this case doesn’t require much Excel work, so you only need to submit your writeup and
don’t need to upload your spreadsheet)
1. Describe the dividend payout policy at Linear Technology (both in terms of what their
dividends per share have been, and also what their payout ratio [defined as the percentage of net
income paid out in dividends] has been). Which has been more stable over time, the dividends
per share, or the payout ratio?
2. Describe the share repurchase policy at Linear. What are some reasons that Linear feels
share repurchases are an important strategy?
3. What are Linear's CapEx financing needs (in relation to their net income numbers and cash
balance)? Does the dividend potentially limit what they can spend on CapEx, based on the last
few years? Since they have a lot of cash, do you think they should pay some of this out to the
shareholders as a special dividend in your opinion?
4. Consider a hypothetical using the 2002 numbers in Exhibit 2: if Linear paid out their entire
cash balance as a special dividend at the beginning of 2002, what would be the effect on the
value of the firm? On the share price? On earnings and EPS? What if they used all of the cash
balance to do a share repurchase at the beginning of 2002 instead? (You can assume that Linear
earns a 3.35% interest rate on their cash balance for your calculations.).
5. If you were Paul Coghlan, what is your recommendation to the board?