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

Cost of preference share capital, I need assistance on Cost of preference s...

I need assistance on Cost of preference share capital in financial management? Can someone help me to solve this proble with example It's Urgent!!!!!!!

Buy side analyst, How to Industry analysis and finally stock picking from B...

How to Industry analysis and finally stock picking from Buy-side perspective

Determine the management buy-outs, Determine the Management buy-outs ...

Determine the Management buy-outs Management buy-outs (MBOs) The management of company buy out the shareholders. Management will usually require financial backers (ventu

Mba 7200, nd held it until it matured, what annual rate of return would she...

nd held it until it matured, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16

Caselets, caselets of bajaj electronics

caselets of bajaj electronics

International strategic management, undertake a critical review of the curr...

undertake a critical review of the current academic literature to determine the reasons for benefits of and the costs to companies of cross listing.

Primary market, Primary Market In an economy, at a given point of time, ...

Primary Market In an economy, at a given point of time, there will be people/entities called savers the surplus units, whose current income exceeds their current expenditure whi

Explain the structure of main financial statement, Citilink has just comple...

Citilink has just completed its 2010/11 management accounts. The directors are going to review the financial statements in the next board meeting. You have to prepare a FINANCIAL

Estimate the cost of equity capital, You are required to choose a company f...

You are required to choose a company for analysis.  This company should be quoted on one of the principal international exchanges.  It may be your own company.  You should then do

Compare and contrast mutual and stockholder, Compare and contrast mutual an...

Compare and contrast mutual and stockholder-owned savings and loan associations. A few savings and loan associations are owned by stockholders, just like commercial banks and ot

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