Describe the walters dividend model, Financial Management

Assignment Help:

Q. Describe the Walters dividend model?

Walter's Model: - Walter's model maintains the doctrine that the dividend policy is relevant for the value of the firm. As-per to the Walter the investment policy of the firm and its dividend policy are interlinked. The major proposition of the Walter approach is the relationship among the following two factors:

(i) The return on firm's investment or else its internal rate of return (r) and (ii) Its cost of capital or the required rate of return (ke) As-per to the Walter approach optimum dividend policy of the firm shall be determined by the relationship between r and Ke.

(i) When Internal Rate of Return is in excess of Cost of Capital (r > Ke):- If the firm's return on investment is in excess of the cost of capital the firm must retain the earnings rather than distributing it to the shareholders for the reason that of the reason that the money is earning more profits in the hands of the firm than it would if it was paid to the shareholders.

(ii) When Internal Rate of Return is beneath Cost of Capital ( r < Ke) :- Alternatively if r is less than Ke the firm must pay off the money to the shareholders in the form of dividends because of the reason that the shareholders can earn higher return by investing it elsewhere.

(iii) If Internal Rate of Return is equivalent to Cost of Capital (r = Ke):- Finally if r is equal to Ke it is a matter of indifference whether the earnings are retained or distributed. For such firms there is no most favourable dividend policy.


Related Discussions:- Describe the walters dividend model

Fixed rate versus floating rate asset backed securities, There are fi...

There are fixed as well as floating rate asset-backed securities. A floating rate asset-backed security is one whose underlying pool consists of loans or receivab

Financial management, Suggestion Regarding Credit Limit Should It Be Approv...

Suggestion Regarding Credit Limit Should It Be Approved Or Not What Should Be The Ammount Of Credit Limit That Electronics Give To Booth Plastics

Define the meaning of overtrading, Define the meaning of Overtrading Wh...

Define the meaning of Overtrading When  a  company  is  trading  at  a  very  fast  pace,  it  would be  generating  sales  on  credit  with  speed, so have a large volume of t

What is the bonds value, Third Inc. wishes to issue a perpetual callable bo...

Third Inc. wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 30% chance that the interest rate will be 4.5% and a 70% chance that th

Basic concepts of principles of credit analysis, Credit analysis is the fin...

Credit analysis is the financial analysis used for determining the creditworthiness of an issuer using various quantitative and qualitative factors. The four Cs an anal

Sally Thomson, Ask questionSally Thomson #Minimum 100 words accepted#

Ask questionSally Thomson #Minimum 100 words accepted#

Determine the investment to maximize the return, Assume that the treasurer ...

Assume that the treasurer of a company has an extra cash reserve of $1,000,000 to invest for six months. The six-month interest rate is 8% per year in the U.S. and 6% per year in G

Explain risk aversion, What is risk aversion? If common stockholders are ri...

What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies? Risk aversion is the trend to avoid add

Explain the term- market penetration, Explain the term- Market penetration ...

Explain the term- Market penetration A strategy which pursues to increase sales of existing services or products to the same market. Price reduction strategies Aggre

Define the primary reasons that companies hold cash, What are the primary r...

What are the primary reasons that companies hold cash? Companies hold cash to make essential payments, to take benefit of opportunities as they arise, and to cover unforeseen eme

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd