Dividend policy at Linear technology Case Study

Dividend policy at unidimensional technology - Case Study ExampleThe paper tells that unidimensional technology has used all four types of dividend distributions. The company has used stock splits four times since its initial public offer (IPO) in 1993, 1996, 1999 and 2000, each of which has been 2 for 1 split. The company has also had share purchases every(prenominal) year since 1993 and every year thereafter except in 2000. Most of these share repurchases were done in 2002 and 2003. The dividend policy that Linear Technology chooses at a particular point in time allow for depend on a number of factors. These factors include the contract it wants to send to its shareholders, the need for funds to devote in new pictures, the type of shareholders that the firm has, and the amount of cash in the firm has at its disposal. The method of dividend hire should also depend on the tax implications. Linear Technology does non appear to be investment funds in any new projects. The fig ures also indicate that research and development expenses have declined since it reached its peak in 2001. This signifies that the company has to a certain extent run give away of ideas. It is therefore sending the wrong signal to its shareholders who may believe that the companys growth prospects are good. The only technology company that showed signs of consistent growth over the period has been Microsoft. Linear seems to be totally focused on satisfying shareholders in terms of dividend deliverouts and maintaining a positive cash flow. There is no mention of any new projects or initiatives to grow the business. If Linear Technology wants to grow it could obtain a bring easily because the company does not currently have any debts. Furthermore, interest on corpo pasture debt is tax exempt and the interest rate on AAA rated corporate debt has fallen every year since 1995. This may help to increase the place of the company and also increase the returns on shareholders funds. An advantage of using debt to fund growth is that interest remunerative on loans is allow fitted as a deduction for tax purposes while a dividend is not. Funding Requirements Linear technology desires to have sufficient cash flows so that the company can withstand any pecuniary crisis. The company however, has the capacity to obtain debt. Linear technology manages it payroll expenses by issuing stock options to retaliate employees. Therefore, when the company does well employees receive a higher profit share and so the company is able to maintain a positive cash flow as well as pay out dividends on a quarterly basis. Available Resources The company has a significant amount of cash on tap(predicate) and this can be backed up with its capacity to borrow. Linear currently has over $1.5m in cash and short term investments. This may not however, be sufficient to finance a major project but would become useful in the companys bid to obtain a loan as it would provide a cushion in the even t that the company is not able to pay interest expenses out of regular earnings. Costs and Benefits of Retaining Excess Funds Retaining excess funds can outgrowth in agency costs. Managers may be tempted to pay themselves excessively. It is more likely that they may not serve care in the use of such funds since the pressures that normally arise from having limited funds do not exist. This lead to a waste of funds that could have been used to pay dividends. The benefits of retaining