Agency problem generally arises due to conflicting priorities and preferences of internal corporate managers and external shareholders while deciding between cash dividends or reinvesting options resulting into agency costs. “Agency costs are the costs incurred or opportunities lost by the shareholders of a company when the interest of management is placed before the interest of the shareholders (Robbins et al., 2005 p. 20).” Historically Linear Technologies (LT) does not seem to have Agency problem, and CEO has his shares and stock options with market worth of approximately $47 million reflects long-term commitment. LT can potentially face the agency problem in the future owing to company’s conservative approach of managing its huge cash(cash equivalent) balance of $1.5 billion. LT invests its 1.5 billion cash balance in low risk, low-reward short-term debt securities (p.3) that has earned mere $52 million in the interest payment in year 2002. Investors on the other hand might prefer for LT to invest this cash balance in R&D to innovate the product-line and/or synergetic acquisitions that can increase …show more content…
Based on the type of stockholder and the tax bracket they belong to, stockholder’s have varying preferences for receiving dividends and stock buyouts. If LT increases dividend by 1 cent to $0.06 per share, LT’s third quarter dividend payout amount will become $18.7 million (0.06*312.4 # of outstanding shares). This dividend increase by itself without stock buybacks is very small value returned to stockholders, especially when compared to LT’s $1.5 billion cash balance and hence may not be appealing to LT’s institutional investor base. But, institutional investors love to see the dividend increase coupled with the smart stock buyback moves (buying back stocks when stock price is
The stock price is currently 103.31, down from a recent high of 121.50. The P/E ratio is declining at 28 and beta at .67, which is expected to grow closer to 1.0. A recent earnings surprise last December yielded a 15% difference from the lower expectations and the latest earnings reports late last month also surprised investors. Estimates for the 2000 fiscal year are being raised by a large majority of analyst who believe that earnings per share will increase and the stock price will reach close to 150.
On 13, March 2016, the board of directors provides approval to increase the quarterly cash dividend of shareholders by 11.1%. which is increased from $0.09 per share to $0.10 per
In this analysis includes a summary of the characters and the issues they are dealing with, as well as concepts that are seen that we have discussed in class. Such as stereotyping and the lack of discrimination and prejudice, then finally I suggest a few actions that can be taken to help solve the issues at hand, allowing the involved parties to explain their positions and give them a few immersion opportunities to experience their individual cultures.
We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s per share and dividends per share will lead to a higher stock price in the future. Due to leveraging, return on equity is higher because debt is the major source of financing capital expenditures. To maintain the 40% debt ratio, no equity issues will be declared until 1985. DuPont will be financing the needed funds by debt. For 1986 onwards, minimum equity funds will be issued. It will be timed to take advantage of favorable market condition. The rest of the financing required will be acquired by issuing debt.
Worstall, T. (2013, March 01). Solving The Principal Agent Problem: Apple Insists That Executives Must Hold Company Stock. Retrieved from Forbes: http://www.forbes.com
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
Dividends represent one of the methods in which firms divided their profit generated by companies' activity. Dividends are usually a cash payment, which are paid on a quarterly or an annual. It is depends on the company dividend policy and, currently, there are many discussions about whether it is necessary for organizations to pay dividends or it is better not to pay them. Depending on the aims of the firm and current position in the market, a company may take one or another decision. This work will deal with questions of why companies pay dividends and why it is very important.
Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering price are too low. Although long-term debt is a better financing choice, a few of the drawbacks are pointed out. Debt holders claim profit before equity. holders, so the chances that profits may be lower than expected. increases risk to equity, may reduce or impede stock value. However, the snares are still a bit snare.
Agency theory addresses three types of problems that could exist from the separation of ownership and management which might consequently affect firm value later. They are the effort problem, the assets’ use problem and different risk preferences problem.
Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].
The basic earnings per ordinary share in 2016 is RM19.14 and RM14.30 in 2015. This shows that the ordinary share had been increased RM4.84 compare to 2016 based on 2015. In the other hand, this company had declared a first interim single-tier dividend of 10 sen per ordinary share amounting to RM22.88 million in respect of the financial year ended 31 December 2016. They sold their ordinary shares of RM400,000,000 units of RM0.50 per each in 2016 and RM200,000,000 units of RM0.50 per each in 2015 to their shareholders. It is increased from 2015 to 2016 with 200,000,000 units. The other investments that available for sale is RM1000 same as in 2015 and 2016.
This week case is about Luxor technologies, a company that for four years (1992-1996) grew exponentially thanks to a strong technical community that produced low cost, high quality applications of the state of the art technology. Their production was characterized by secrecy, and they never shared license with any other company. More than that, all their complete production was from their own shelf in order to protect the patent. Their success allowed them to dismiss the need for technical risk management on the company, even when their product did not reached the desired specifications.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
In a world that is quickly becoming ever dependant on technology, people take many things for granted. For example: nearly every day you and I get into our cars to go to work, school, shopping, or anywhere else you can think of. Naturally, car manufacturers are constantly coming up with new technologies to get people to buy their car over the next manufacturers; and a lot of these new inventions seem straight out of a sci-fi movie, or book in this case.
Throughout history, getting things (and people) where they need to go has been a pretty basic need. The Romans needed to move stone to build their aqueducts; the nobles wanted luxury spices and silks brought to them from far off lands; ancient cities needed to move vegetables and grains from the farms, to storage, and then to the cities to feed the populace. Transportation has always been one of the backbones of every great civilization, without the ability to move goods long distances, your 'culture' was only the distance you could go conveniently to get what was necessary for survival that you could not produce. The industry boomed during the railroading system and hasn't slowed since. First, there were ships and horse-drawn carriages, then cars, now huge 40 ton trucks and jumbo air-liners.