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This should be done in groups of 3-5 people. You are required to submit the case reports at the beginning of the class on the due date. The report should not exceed 7 pages (double-spaced, excluding appendices). Use font 12, with standard page margins. Numerical support for your analysis is required. You are required to email me your write-up and the Excel files that show your analysis.
For each presentation, your group should appoint a designated speaker/presenter. The designated speaker will present your group's analysis to the rest of the class. At the end of the presentation, other groups may pose questions. At this point, any member of the presenting group may respond to the questions. No one member shall present more than once. The presentations should NOT take longer than 6-7 minutes. If necessary, feel free to use Powerpoints and other visual aids as necessary. Note that the main purpose of these presentations is to give you a chance to speak up freely and for the rest of the class to participate in a relaxed atmosphere.
For case write-up and analysis, focus mainly on the core aspects (e.g., I DO NOT need 3-page background and 5-minute SWOT analysis). Focus on FINANCE!
Participation in group discussions and presentations: I expect that all team members will contribute equally. This includes, but is not restricted to:
Ø Reading the case carefully and completely prior to class
Ø Making a significant effort to thoroughly understand the case
Ø Completing the case report assignment and submitting it on time
Ø Being available to meet with the team prior to class start, if this is the desire of your team
Ø Being willing to respond to questions after presentations
If a team member does not contribute his or her fair share, I expect that your team will deal with this. If the situation cannot be resolved internally, please advise me as soon as possible. I will assume that all team members make approximately the same contribution unless you advise me otherwise.
Read Dividend Policy at Linear Technology and write a case report based on the following:
– Relate the case study to the topics/theories we learnt in class (M & M propositions, taxes, signaling, agency problems, etc.).
– What do you think of Linear Technology's current payout policy? E.g., do you think they have a target payout ratio? Residual dividend policy? (XIAO YU)
– In particular, do you think the signaling motive of dividend payments is applicable to Linear Technology (and the industry in general)? How about agency problems? Clientele effects? Explain. Are there other factors you could think of? (HELEN)
– Also, do you think dividends are important to Linear Technology's current investors? Do you think dividends constitute a significant portion of Linear Technology's returns? (BILUN LI)
– Do you think Linear Technology should increase its dividend? Provide reasons. In order to answer this, you would need to analyze the case's appendices. In particular, look at the past, present, and future (forecasted) income statements, balance sheets, etc… You would need to compare the company with its industry peers. You would also need to look at the past, present, and future industry trends. ( Samatar )
– What do you think of Linear Technology's repurchases? Explain. Should it repurchase instead of paying dividends? Why? Also analyze whether other 'alternatives' (e.g., special dividends) are indeed feasible (to investors, to management, etc.). (Layne)
The questions posed above are not mutually exclusive. In order to answer these questions, you may need to analyze the company's past, present, and future (forecasted) income statements, balance sheets, etc.( if any). You would need to compare the company with its industry peers (if any).
Sometimes, it might be necessary to make some assumptions. For instance, you might need some information on market returns but the case may not provide it. What would be a reasonable assumption of market returns? 5%? 10%? 15%? Make realistic assumptions and educated guesses as necessary. This applies to all other case analyses for this course.
Dividend Signaling is a term used when an organization increases its dividend payout ratio with a belief that the increased dividend payout each year indicates the entity having a brighter future and a substantial potential of growth. (Галанов & Galanov, 2013) It is a theory which is largely debated, yet it has been found on several occasions that a traditional investor is inclined towards investing in an entity which increases the dividend distribution ratio and this action is treated as an indication of increased profitability and anticipation of better profits. In case of Linear Technology, the management does not want to come up in front of the market as a company which constantly increases the dividend. The company maintained a dividend payout ratio of 25% to 30%.
The management of Linear Technology realizes that market, in the long run, trusts an entity which instead of giving whooping dividends maintains and gives dividends regularly. (Vieira & Raposo, 2007) As regards to the telecommunication industry, of which Linear Technology is a part of the investors look out of stability and consistency more than lucrative dividends. Most of the companies on the SOX index understood this and focused more on maintaining the dividend payout ratio instead of increasing dividend in a period. This sentiment of the investors has been well understood by Linear Technology and instead of giving out all its distributable profits as dividends, a part of it was invested for share buybacks making the shareholders believe that Linear Technology stands out as an investment option in the industry. This constant dividend distribution scheme also makes Linear an ideal choice for investment by European institutional investors and mutual funds.
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