Day: February 6, 2022

Conditions relevant for determining the payout ratio are as follows: Funds requirement Liquidity Access to external sources of financing Shareholder preferences Differences in the cost of external equity and retained earnings  Control Taxes

Investor Preference for Dividends- If taxes and transaction costs are ignored, dividend and capital receipts should be perfect substitutes. Yet there appears to be a strong preference for dividends. Why? Explanations are based on the behavioral principles of self-control and Read More …

John F. Muth wrote a paper entitled “Rational Expectations and the Theory of Price Movements,” which was published in 1961 This has been recognized as one of the most influential contributions to economics in the last few decades as it Read More …

Miller and Modigliani (MM, hereafter) have advanced the view that the value of a firm solely on its earning power and is not influenced by the manner in which its Earnings are split between dividends and retained earnings. This view, Read More …

Myron Gordon proposed a model of stock valuation using the dividend capitalization approach. His model is based on the following assumptions: Retained earnings represent the only source of financing for the firm. Thus, like the Walter model the Gordon model Read More …

Walter Model James Walter has proposed a model of share valuation which supports the view that the dividend policy of the firm has a bearing on share valuation. His model is based on the following assumptions: The firm is an Read More …

Dividend policy of a firm determines what proportion of earnings is paid to holders by way of dividends and what proportion is ploughed back in the firm for investment purposes. If a firm’s capital budgeting decision is independent of its Read More …

Risk is inherent in almost every business decision. More so in capital budgeting decision as they involve costs and benefits extending over a long period of time during which many things can change in unanticipated ways. A research and development Read More …

Capital budgeting deals with the allocation of funds to competing projects; they involve commitment of funds to receive future benefits. Characteristics of Capital Budgeting Decisions They involve investment in fixed assets whose useful life is more than the effect of Read More …

Agency refers to the relationship which submits between two parties, one party called the principal engages another one called agent and gives agent authority and mandate to act on the principal’s benefit. The actions of agent are binding on the Read More …