Linear Technology

2) Although there is more shares, the Earnings after taxes are now higher due to the lower variable costs, which compensates for the increase in earnings based on the same 1,000,000 units at $30. Also the bigger part of the 14M invested, 10M was financied with issuing of

6. The financial riskiness of SciTronics increased between 2005 and 2008 as demonstrated by its higher debt-to-equity ratio. However this does not seem to pose a problem for the company as it actually managed to improve its margin of protection for creditors (it is now able to generate $13 in income for each $1 of interest, versus a previous 10 times interest earned).

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

- A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,200 and other assets of $10,800. Equity is worth $12,000. The firm has 750 shares of stock outstanding and net income of $775. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

Since firms incur the re-purchase option by offering $20 cash for each stock bought back, the number of outstanding shares will be reduced. The Earnings per share will increase leading to an increased stock price.

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

Because often dividends are perceived as spendable income (some stock holders look at stocks as a source of income as it is easier to get a dividend instead of selling the stocks). Sometimes investment opportunities are low, they reach the limit of their marketplace, so companies decides to distribute cash in the form of dividends. For some companies it is a way of showing that the company is stable financially and can fulfill the commitment of paying out a dividend. Also it is a way for companies to mitigate agency problems when they have excess cash.

First, a large share repurchase will significantly increase shareholders’ percentage ownership of BKI. BKI has been under levered for decades. The company acquisitions of several small manufacturers made shareholders’ equity be diluted even more. In other words, shareholders, especially the main shareholders in Blaine’s board, are paying for BKI’s over-liquidity. This share repurchase will not only give the board more flexibility to allot dividends, but will lead to a stable development of BKI’s business in the long run.

There are many theoretical and empirical results describing the decisions companies make in this area. At the same time, however, there is no generally accepted model describing payout policy. Moreover, empirical findings are often contradictory or difficult to interpret in light of the theory. In their seminal paper, Miller and Modigliani (1961) showed that under certain assumptions dividends are irrelevant; all that matters is the firm’s investment opportunities. Miller and Modigliani considered the case of perfect capital markets (no transaction costs or tax differentials, no pricing power for any of the participants, no information asymmetries or costs), rational behaviour (more wealth being preferred to less, indifference between cash payments and share value increases) and perfect certainty (future investments and profits are given). In real life, however, people seem to care about dividends. Lintner.s (1956) classical study on dividend policy suggests that dividends represent the primary and active decision variable in most situations. Lintner suggests a model of partial adjustment to a given payout rate.

Managers have substantial discretion to time their firm's stock repurchases, which increase diluted EPS. The authors sought to identify if and when firms were repurchasing their own shares to manage diluted EPS, and whether employee stock options played a role in these decisions. The issue is especially pertinent since repurchases are often portrayed as being good for the company. However, the authors argue that repurchases for the purpose of managing diluted EPS should have no real effect on firm value.

Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a somewhat permanent dividend policy, which may in turn impact on investors and perceptions of the company in the financial markets. What they decide depends on the situation of the

Dividend policy remained an issue for many researchers of the finance field. The main question regarding the dividend policy is that whether it is the cause of variability in the prices of the stock or not? this question is still a mystery for the finance related researchers. Dividend can be simply defined as “the residual

Thus, shareholders rely on dividends, dividend announcement and changes in dividend between periods as a basis for company valuation, performance evaluation and to forecast future earnings. An increase in dividends is often regarded as a positive signal, which causes share prices to increase, and cause investors to buy more shares. On the other hand, a decrease in dividend will cause a decrease in share price, as investors sell their shares.

When a company generates a profit, management has one of two choices: They can either pay it out to shareholders as a cash dividend, or retain the earnings and reinvest them in the business.