Q. What are assumptions of Walters dividend model?

1. Constant Return and Cost of Capital: - The Walter' model presume that the firm's rate of return and its cost of capital are constant.

2. Internal Financing: - All financing is complete through the retained earnings that is external sources of funds like debt or new equity capital aren't used.

3. 100% Payout or Retention: - Every earnings are either distributed as dividends or reinvested internally immediately.

4. Constant Earnings per share as well as Constant Dividends per share:-

There is no change in key namely, variables, beginning earnings per share and dividend per share.

5. Infinite Time: - The firm has a extremely long life.

Walter's Formula for formative the value of a share:-

D + r / K_e (E-D)

Where P = Market price per share

D = Dividend per share

E = Earnings per share

r = Internal Rate of Return

K = Cost of Equity Capital or Capitalisation Rate e

Posted Date: 8/5/2013 3:24:25 AM | Location : United States

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