FINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II
|
|
- Irene Cox
- 6 years ago
- Views:
Transcription
1 FINANCIAL MANAGEMENT (PART 16) DIVIDEND POLICY-II 1. INTRODUCTION Dear Students, Welcome to the lecture series on Financial Management. Today in this lecture we shall cover the topic Dividend Policy. Under dividend policy, we shall learn about various dividend decisions which affect the value of the firm. So our topic of discussion today is dividend decisions and the value of firm. Under dividend decisions there are two schools of thought which suggest that whether the dividend policy affect the market price of shares or not. So there are certain scholars who are of the view that the dividend policy does affect the market price of the shares and there are other set of people who suggest that it is not at all relevant to determine the market value of share. So we have already discussed one of the models in our previous lectures. Let us recap them. There are two thoughts of school one suggest relevant theory and other suggest irrelevant theory. By relevant theory we mean market price is affected and by irrelevant theory we mean that market price of shares is not affected by the payment of dividend. The relevant theory is given by Walter and Gordon while irrelevant theory is suggested by Modigliani Miller model. So we have already discussed the Walter s theory in our previous lecture. Today we will concentrate on Gordon Model of dividend decision and other one is Modigliani Miler Approach. So MM Model and Gordon model we have to learn in detail
2 2. THEORIES OF RELEVANCE GORDON MODEL Myron Gordon has suggests that dividend policy affects the market value of the share. That is the valuation gets affected as the dividend payment is increased or decrease so payout ratio and retention ratio plays a vital role to analyze or to evaluate the market price of the shares. Let us see what the Gordon model suggest? Now students we will learn in detail what the Gordon model suggest? Gordon Model suggests that investors are risk averse and they put their preference more on current dividend rather than capital gains so there is a direct relationship between dividend policy and market price of the share. He has built his assumptions on the premises that the future dividends or the capital gains are risky and uncertain proposition that is why there is the nexus between current dividend and market price of the share. Hence dividend policy has become relevant. He has based this model on the assumption that the bird in the hand argument is more appropriate as the current dividends are given preference under Gordon Model. Now what happens that dividends are more predictable than capital gains because the company cannot dictate the market price of the share but they can control the dividend the payout ratio and retention ratio can be controlled by the management? These are the basis guidelines on which the Gordon Model is based. ASSUMPTIONS OF GORDON MODEL The assumptions are almost same as that of the Walter Model. So let us analysis what are the assumptions of Walter Model? 1. The firm only uses retained earnings for financing its investments. It is all equity based firm and there are no debts and debenture. 2. In the firm r and k remain unchanged.
3 3. The firm has perpetual life. It is going assumption will be on long-term basis. 4. There are no corporate taxes 5. The retention ratio is constant after once firm decided it. There are certain additional assumptions in Gordon Model besides those we have already learnt and we have taken those assumptions from Walter s model. Both the model share some common assumptions but there are certain additional assumptions which we need to keep in mind when we learn the Gordon model. 1. G is the growth rate and it is the product of b and r. Where b denotes retention ratio and r denotes rate of return on investment. So our growth rate will be the product of retention rate and return on investment. 2. Besides being constant Ke is greater than g that means the cost of capital is greater than the growth. (ke>g). Where this assumption fails, the Gordon Model s calculation fails. The implication is that where g is greater than ke we cannot work on the Gordon Model. So these are the assumptions which we need to keep in mind while considering the Gordon model to evaluate the market price of the share where there is relevance in the dividend policy as well as the market price of the share. 3. GORDON MODEL FORMULA AND ANALYSIS Now we will learn the formula for Gordon Model or
4 where Price of the share in the market E= Earnings per share b= retention ratio/ 1- payout ratio 1-b= Percentage of earnings distributed as dividends R= rate of return Ke= cost of capital br= Growth rate These both the formula will give us same result. The presentation of formula is different. 4. ANALYSIS OF GORDON MODEL WHERE r>ke Now we will learn the Gordon model s calculation with the help of an example where we will analyze the data of three companies known as Growth limited, normal limited and Declining Limited. First of all we have to analyze the situation of growing company. Growing company is a company where rate of return is greater than cost of capital? The only difference among these three companies is that of r that is rate of return so we will analyze the situation at different payout that is at 40%, 60% and 90% that how the change in the payouts will result in the change in the market price of the shares. The earnings and cost of capital will remain same for all the cases. The earnings will be Rs.10/- per share and the cost of capital (ke) will be 10% which is denoted by.10 and we will calculate g as g= b*r. b will be calculated as 1-payout. In the first case we have the payout as 40% so b will come as 60% because 1- payout will give us the retention ratio as 60% In the second case the payout is 60% so b will be 40%
5 And in the last case the payout is 90% so b will be 10% So 60%, 40% and 10% will be the retention ratios meaning thereby if we have Rs.10 with us in the first case we are retaining Rs.6 and paying Rs 4 as dividend. In the second case out of Rs.10 we are paying Rs. 6 and retaining Rs.4 and in the last case we are paying dividend as high as 90% that is we are paying Rs.9 as dividend out of Rs.10 and retaining only Rs.1.Payout and retention ratio shall be equal to 100% What is the implication of this payout, retention in the case of Growth, normal and declining limiting? In Growth limited r will be greater than ke so we will assume r to be 15% that is r is greater than ke so it is growing firm. Then we will calculate the g for each type of payout which is being computed in the table below: Growth Limited Where r>ke, r= 0.15, ke=.10 E= Rs.10 Calculation of Market price as per Gordon Model Payout 40% Payout 60% Payout 90% Retention 60% (b) Retention (b) 40% Retention (b) 10% b*r 0.6*.15= *0.15= E(1-b)/ ke-g = Rs. 400 E(1-b)/ ke-g
6 0.06 = Rs *.15=0.015 = Rs. 106 Conclusion: Where the payout ratio is low and retention ratio is high we are getting the market price to be highest. As the payout ratio is increasing the market price is decreasing from Rs.400/- it has gone as low as Rs.106. It is because of the high payout ratio. In a growth firm, we can say that the retention ratio should be high in order to have the higher market price of the share We can conclude that the higher the retention ratio better will be the market price of the share so the company will have better investment opportunities than the shareholders. This is the first part of the calculations under Gordon Model which we have analysis right now.
7 5. ANALYSIS OF GORDON MODEL WHERE r=ke We are going to analysis the Normal Limited. Normal limited is a company where rate of return is equal to cost of capital here both r and ke are equal to 10%under this scenario we have to pay out the market value of the share and we will find out what shall be the impact of higher payout ratio or the lower payout ratio. Whether retention should be there or payout should be there in order to maximize the wealth of the share holders. So let us start off our computation with the same formula This is the formula we are going to use in all the three situation where payout ratio is 40%, 60% and 90%. So what we need to do is first of all we need to calculate P for 40% payout then for 60% and then for 90%
8 Calculation of Market price as per Gordon Model Payout 40% Payout 60% Payout 90% Retention (b) 60% Retention (b) 40% Retention (b) 10% E(1-b)/ ke-g E(1-b)/ ke-g b*r 0.6*.10= 0.06 = Rs *0.10= 0.04 = Rs *.10=0.01 = Rs. 100 Conclusion: in all the three payouts the market price is coming as Rs.100. We can conclude that where the normal limited sort of company is there that is where rate of return and cost of capital are equal the change in the payout ratio or the dividend are not going to affect the market price of the share. It is an indifferent point. The market price of the share will remain same irrespective of the retention ratio or payout ratio.
9 6. ANALYSIS OF GORDON MODEL WHERE r<ke Now we are going to analyze the third scenario which is called the declining firm or declining company. By declining we mean that the rate of return is lower than cost of capital. Here our cost of capital is 10% in the question and in the declining firm the rate of return will be lower than cost of capital so we assume it to be 8%.Now we have to find out the prices under different scernios where payout is 40%, 60% and 90%. We can analysis the computation in the table prepared below having details of calculation of growth rate as well as the price of the shares of the company.
10 Calculation of Market price as per Gordon Model Payout 40% Payout 60% Payout 90% Retention 60% (b) Retention (b) 40% Retention (b) 10% b*r 0.6*.08= E(1-b)/ ke-g = Rs. 77 E(1-b)/ ke-g 0.4*0.08= *.08=0.008 = Rs. 88 = Rs. 98 Conclusion : Analyzing this table we can conclude that as the payout ratio is increasing so is the market price is increasing in the case of declining firm that is if r is less than ke higher the payout ratio, higher the market
11 price of the share meaning thereby the investors have better investment opportunities than the company. So we can conclude that: In the case of growth limited where r>ke, higher the retention ratio, higher is the market price of the share. In the case of normal limited where r=ke, whether the payout ratio is higher or lower it is not going to affect the market price of the share and it will remain unchanged. In the case of declining firm, where r< ke, higher the payout ratio, less the retention ratio, the market price of the share will be higher. So accordingly we have to analysis the dividend policy. 7. SUMMARY With this we have completed the calculation part of the Gordon Model. Today we have learnt in our lecture the relevant theory and irrelevant theory aspect that is the two sets of theories given under dividend policy whether the market price of the share is affected by the dividend or not. So the relevant theory has been propounded by two scholars first is Walter and another is Gordon. So under this lecture, Gordon s assumption, the underlying scenario of the Gordon s model and the calculation aspect has been covered. Thank You!!
FINANCIAL MANAGEMENT (PART-19) DIVIDEND POLICY I. Dear students, Welcome to the lecture series on Financial Management.
FINANCIAL MANAGEMENT (PART-19) DIVIDEND POLICY I 1. INTRODUCTION Dear students, Welcome to the lecture series on Financial Management. Learning Objectives Introduction Types of Dividend Policy Major issues
More informationPAPER No.: 8 Financial Management MODULE No. : 25 Capital Structure Theories IV: MM Hypothesis with Taxes, Merton Miller Argument
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 25: Capital Structure Theories IV: MM Hypothesis with Taxes and Merton Miller
More informationCHAPTER 17 DIVIDEND THEORY
CHAPTER 17 DIVIDEND THEORY Q.1 What are the essentials of Walter s dividend model? Explain its shortcomings. A1. Prof. J E Walter argues that the choice of dividend policies almost always affects the value
More informationDividend Decisions. LOS 1 : Introduction 1.1
1.1 Dividend Decisions LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement Sales Less: Variable cost Contribution Less: Fixed cost excluding Dep.
More informationChapter 1. Research Methodology
Chapter 1 Research Methodology 1.1 Introduction: Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the independence,
More information5. Risk in capital budgeting implies that the decision maker knows of the cash flows. A. Probability B. Variability C. Certainity D.
1. The assets of a business can be classified as A. Only fixed assets B. Only current assets C. Fixed and current assets D. None of the above 2. What is customer value? A. Post purchase dissonance B. Excess
More informationFREDERICK OWUSU PREMPEH
EXCEL PROFESSIONAL INSTITUTE 3.3 ADVANCED FINANCIAL MANAGEMENT LECTURES SLIDES FREDERICK OWUSU PREMPEH EXCEL PROFESSIONAL INSTITUTE Lecture 8 Theories of capital structure traditional and Modigliani and
More informationUNIT 9 DIVIDEND THEORY MODULE - 3
UNIT 9 DIVIDEND THEORY MODULE - 3 UNIT 9 DIVIDEND THEORY Dividend Theory Structure 9.0 Introduction 9.1 Unit Objectives 9.2 Issues In Dividend Policy 9.3 Dividend Relevance: Walter s Model 9.3.1 Growth
More informationCHAPTER 19 DIVIDENDS AND OTHER PAYOUTS
CHAPTER 19 DIVIDENDS AND OTHER PAYOUTS Answers to Concepts Review and Critical Thinking Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend
More informationCapital Structure Decisions
CAIPCC/Paper3/FinMgt/FinDecisions/CapitalStructure Capital Structure Decisions CA Navin Khandelwal Learning Objectives: u A Capital structure u An optimal capital structure u Value of firm u EBIT-EPS u
More informationDividend Policy: Determining the Relevancy in Three U.S. Sectors
Dividend Policy: Determining the Relevancy in Three U.S. Sectors Corey Cole Eastern New Mexico University Ying Yan Eastern New Mexico University David Hemley Eastern New Mexico University The purpose of
More informationChapter - 2. Conceptual Framework of Dividend
Chapter - 2 Conceptual Framework of Dividend 2.1 Introduction: Dividend decision by any company is an important issue to be determined by the financial management. The dividend policy of firm determines
More informationUNIT 5 COST OF CAPITAL
UNIT 5 COST OF CAPITAL UNIT 5 COST OF CAPITAL Cost of Capital Structure 5.0 Introduction 5.1 Unit Objectives 5.2 Concept of Cost of Capital 5.3 Importance of Cost of Capital 5.4 Classification of Cost
More informationINTRODUCTION Meaning of Capital Structure Definition of Capital Structure Gerestenbeg, James C. Van Horne, Presana Chandra,
INTRODUCTION Capital is the major part of all kinds of business activities, which are decided by the size, and nature of the business concern. Capital may be raised with the help of various sources. If
More informationUNIT 8 DIVIDEND THEORY AND POLICY
UNIT 8 DIVIDEND THEORY AND OLICY UNIT 8 DIVIDEND THEORY AND OLICY Dividend Theory and olicy Structure 8.0 Introduction 8.1 Unit Objectives 8.2 Meaning of Dividend 8.2.1 Nature of Dividend Decision 8.3
More informationChapter 13 Capital Structure and Distribution Policy
Chapter 13 Capital Structure and Distribution Policy Learning Objectives After reading this chapter, students should be able to: Differentiate among the following capital structure theories: Modigliani
More information5. Equity Valuation and the Cost of Capital
5. Equity Valuation and the Cost of Capital Introduction Part Two provided a detailed explanation of the investment decision with only oblique reference to the finance decision, which determines a company
More informationST. JOSEPH S COLLEGE OF COMMERCE (AUTONOMOUS)
ST. JOSEPH S COLLEGE OF COMMERCE (AUTONOMOUS) LESSON PLAN 205-206 ODD SEMESTER BACHELORS OF COMMERCE (BPM) FINANCIAL MANAGEMENT PREPARED BY: Ms. Suganthi Pais Lesson Plan, 206-207 Odd Semester, Financial
More informationFINALTERM EXAMINATION Fall 2009 MGT201- Financial Management (Session - 4)
FINALTERM EXAMINATION Fall 2009 MGT201- Financial Management (Session - 4) Time: 120 min Marks: 87 Question No: 1 ( Marks: 1 ) - Please choose one Among the pairs given below select a(n) example of a principal
More informationPage 515 Summary and Conclusions
Page 515 Summary and Conclusions 1. We began our discussion of the capital structure decision by arguing that the particular capital structure that maximizes the value of the firm is also the one that
More informationValuation and Tax Policy
Valuation and Tax Policy Lakehead University Winter 2005 Formula Approach for Valuing Companies Let EBIT t Earnings before interest and taxes at time t T Corporate tax rate I t Firm s investments at time
More informationKDF1C FINANCIAL MANAGEMENT Unit : I - V
KDF1C FINANCIAL MANAGEMENT Unit : I - V 1 SYLLABUS UNIT I Financial management- objectives- functions Scope- Evolution Interface of financial management with other areas Environment of corporate finance
More informationFINANCIAL MANAGEMENT (PART-21) TOOLS OF FINANCIAL PLANNING CASH-BUDGET (PART-2)
FINANCIAL MANAGEMENT (PART-21) TOOLS OF FINANCIAL PLANNING CASH-BUDGET (PART-2) 1. INTRODUCTION Dear Students, Welcome to the lecture series on Financial Management. Today we shall cover the topic tools
More informationCA - FINAL SECURITY VALUATION. FCA, CFA L3 Candidate
CA - FINAL SECURITY VALUATION FCA, CFA L3 Candidate 2.1 Security Valuation Study Session 2 LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement
More informationImpact of Dividends on Share Prices of Select It Firms
Impact of s on Share Prices of Select It Firms Rafat Ahmedi Asst. Professor St. Joseph Degree and P.G College ABSTRACT policy has been an issue of interest in financial literature since Joint Stock Companies
More informationFINANCIAL MANAGEMENT ( PART-2 ) NET PRESENT VALUE
FINANCIAL MANAGEMENT ( PART-2 ) NET PRESENT VALUE 1. INTRODUCTION Dear students, welcome to the lecture series on financial management. Today in this lecture, we shall learn the techniques of evaluation
More informationFinancial Management Bachelors of Business Administration Study Notes & Tutorial Questions Chapter 3: Capital Structure
Financial Management Bachelors of Business Administration Study Notes & Tutorial Questions Chapter 3: Capital Structure Ibrahim Sameer AVID College Page 1 Chapter 3: Capital Structure Introduction Capital
More informationCHAPTER 14 Distributions to shareholders: Dividends and share repurchases. What is dividend policy?
CHAPTER 14 Distributions to shareholders: Dividends and share repurchases Theories of investor preferences Signaling effects Residual model Dividend reinvestment plans Stock dividends and stock splits
More informationIslamic University of Gaza Advanced Financial Management Dr. Fares Abu Mouamer Final Exam Sat.30/1/ pm
Islamic University of Gaza Advanced Financial Management Dr. Fares Abu Mouamer Final Exam Sat.30/1/2008 3 pm 1. Which of the following statements is most correct? a. A risk averse investor will seek to
More informationInvestment and Portfolio Management. Lecture 1: Managed funds fall into a number of categories that pool investors funds
Lecture 1: Managed funds fall into a number of categories that pool investors funds Types of managed funds: Unit trusts Investors funds are pooled, usually into specific types of assets Investors are assigned
More informationD.K.M COLLEGE FOR WOMEN, (AUTONOMOUS),VELLORE-1. DEPARTMENT OF COMMERCE I M.COM ADVANCED FINANCIAL MANAGEMENT.
D.K.M COLLEGE FOR WOMEN, (AUTONOMOUS),VELLORE-1. DEPARTMENT OF COMMERCE I M.COM ADVANCED FINANCIAL MANAGEMENT. SECTION-A 6 Marks 1. State the objectives of Financial Management? 2. Explain the functions
More informationPAPER No. : 8 Financial Management MODULE No. : 23 Capital Structure II: NOI and Traditional
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 23: Capital Structure II: NOI and Traditional COM_P8_M23 TABLE OF CONTENTS 1.
More informationCapital Structure I. Corporate Finance and Incentives. Lars Jul Overby. Department of Economics University of Copenhagen.
Capital Structure I Corporate Finance and Incentives Lars Jul Overby Department of Economics University of Copenhagen December 2010 Lars Jul Overby (D of Economics - UoC) Capital Structure I 12/10 1 /
More informationFINANCE 402 Capital Budgeting and Corporate Objectives. Syllabus
FINANCE 402 Capital Budgeting and Corporate Objectives Course Description: Syllabus The objective of this course is to provide a rigorous introduction to the fundamental principles of asset valuation and
More informationCHAPTER17 DIVIDENDS AND DIVIDEND POLICY
CHAPTER17 DIVIDENDS AND DIVIDEND POLICY Learning Objectives LO1 Dividend types and how dividends are paid. LO2 The issues surrounding dividend policy decisions. LO3 The difference between cash and stock
More informationFINANCIAL MANAGEMENT
PART 2 CPA SECTION 3 CCP SECTION 3 CS SECTION 3 STUDY TEXT KASNEB JULY 2018 SYLLABUS Revised on: January 2019 PAPER NO.8 GENERAL OBJECTIVE This paper is intended to equip the candidate with knowledge,
More informationPaper F9. Financial Management. Specimen Exam applicable from September Fundamentals Level Skills Module
Fundamentals Level Skills Module Financial Management Specimen Exam applicable from September 2016 Time allowed: 3 hours 15 minutes This question paper is divided into three sections: Section A ALL 15
More informationUniversity of Pennsylvania The Wharton School
University of Pennsylvania The Wharton School FNCE 100 PROBLEM SET #6 Fall Term 2003 A. Craig MacKinlay Capital Structure 1. The XYZ Co. is assessing its current capital structure and its implications
More informationDividend Policy. Supplement to Chapter 17 FIL 341 Prepared by Keldon Bauer
Dividend Policy Supplement to Chapter 17 FIL 341 Prepared by Keldon Bauer Dividends or Capital Gains? The ultimate goal of financial managers should be the maximization of shareholder wealth. Shareholder
More informationFigure 14.1 Per Share Earnings and Dividends of the S&P500 Index. III. Figure 14.2 Aggregate Dividends and Repurchases for All U.S.
I. The Basics of Payout Policy: A. The term payout policy refers to the decisions that a firm makes regarding whether to distribute cash to shareholders, how much cash to distribute, and the means by which
More informationAre Capital Structure Decisions Relevant?
Are Capital Structure Decisions Relevant? 161 Chapter 17 Are Capital Structure Decisions Relevant? Contents 17.1 The Capital Structure Problem.................... 161 17.2 The Capital Structure Problem
More informationM.V.S.R Engineering College. Department of Business Managment
M.V.S.R Engineering College Department of Business Managment CONCEPTS IN FINANCIAL MANAGEMENT 1. Finance. a.finance is a simple task of providing the necessary funds (money) required by the business of
More informationMaybe Capital Structure Affects Firm Value After All?
Maybe Capital Structure Affects Firm Value After All? 173 Chapter 18 Maybe Capital Structure Affects Firm Value After All? Contents 18.1 Only Through Changes in Assets................... 173 18.2 Corporate
More informationTables of discount factors and annuity factors are provided in the appendix at the end of the paper.
UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination 2016-17 BUSINESS FINANCE NBS-5008Y Time allowed: 3 hours Answer FOUR questions out of six ALL questions carry EQUAL marks Tables
More informationDividend Policy. Return of Buybacks. Performance of Dividends Stocks. Cash Dividend vs. Stock Repurchase Dividend Theories.
Dividend Policy Cash Dividend vs. Stock Repurchase Dividend Theories Return of Buybacks Source: Damodaran Performance of Dividends Stocks Source: Ned Davis Research, Data:1972-2011 1 Types of Dividends
More informationOptimal Capital Structure
Capital Structure Optimal Capital Structure What is capital structure? How should a firm choose a debt-toequity ratio? The goal: Which is done by: Which is done by: Financial Leverage Scenario A B C Market
More informationPAPER 7 : FINANCIAL MANAGEMENT
Level of Knowledge: Working knowledge PAPER 7 : FINANCIAL MANAGEMENT (60 Marks) Learning Outcome: To gain knowledge of various aspects of Financial Management and the ability to apply such knowledge in
More informationFN428 : Investment Banking. Lecture : Dividend Policy
FN428 : Investment Banking Lecture : Dividend Policy Dividend Policy : The Questions Profitable companies regularly face three important questions: (1) How much of our free cash flow should we pass on
More informationCHAPTER 14. Capital Structure in a Perfect Market. Chapter Synopsis
CHAPTR 14 Capital Structure in a Perfect Market Chapter Synopsis 14.1 quity Versus Debt Financing A firm s capital structure refers to the debt, equity, and other securities used to finance its fixed assets.
More informationCorporate Finance & Risk Management 03 Payout Policy
Corporate Finance & Risk Management 03 Payout Policy Ernst Maug University of Mannheim http://cf.bwl.uni-mannheim.de maug@uni-mannheim.de Tel: +49 (621) 181-1952 Topics Covered The choice of payout policy
More informationCHAPTER -3 DIVIDEND POLICY-A THEORY
CHAPTER -3 DIVIDEND POLICY-A THEORY 29 CONTENT 3.0 Introduction 3.1 Dividend Defined 3.2 Dividend Policy Defined 3.3 Types of Dividends 3.3.1 Cash dividend 3.3.2 Bonus Shares: (OR Stock Dividend in USA)
More informationSession 09 & 10. Dividend Policy
Session 09 & 10 Dividend Policy Programme : Postgraduate Diploma in Business, Finance & Strategy (PGDBFS 2017) Course : Corporate Valuation (PGDBFS 203) Lecturer : Mr. Asanka Ranasinghe MBA (Colombo),
More informationTHE IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN NIGERIA
TALLINN UNIVERSITY OF TECHNOLOGY School of Business and Governance Department of Economics and Finance Anifat Oladipupo THE IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN NIGERIA Bachelors Thesis
More informationCHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS
CHAPTER 15 B- 1 CHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concepts Review and Critical Thinking Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals
More informationM&M Propositions and the BPM
M&M Propositions and the BPM Ogden, Jen and O Connor, Chapter 2 Bus 3019, Winter 2004 Outline of the Lecture Modigliani and Miller Propositions With Taxes Without Taxes The Binomial Pricing Model 2 An
More informationDistributions to Shareholders
Chapter 14 Distributions to Shareholders Investor Preferences on Dividends Signaling Effects Residual Dividend Model Dividend Reinvestment Plans Stock Repurchases Stock Dividends and Stock Splits 14 1
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 3 20.02.2014 Selecting the Right Investment Projects Capital Budgeting Tools 2 The Capital Budgeting Process Generation
More informationCHAPTER 17. Payout Policy
CHAPTER 17 1 Payout Policy 1. a. Distributes a relatively low proportion of current earnings to offset fluctuations in operational cash flow; lower P/E ratio. b. Distributes a relatively high proportion
More informationAFM 371 Winter 2008 Chapter 19 - Dividends And Other Payouts
AFM 371 Winter 2008 Chapter 19 - Dividends And Other Payouts 1 / 29 Outline Background Dividend Policy In Perfect Capital Markets Share Repurchases Dividend Policy In Imperfect Markets 2 / 29 Introduction
More informationMicro Theory I Assignment #5 - Answer key
Micro Theory I Assignment #5 - Answer key 1. Exercises from MWG (Chapter 6): (a) Exercise 6.B.1 from MWG: Show that if the preferences % over L satisfy the independence axiom, then for all 2 (0; 1) and
More informationModule 4: Capital Structure and Dividend Policy
Module 4: Capital Structure and Dividend Policy Reading 4.1 Capital structure theory Reading 4.2 Capital structure theory in perfect markets Reading 4.3 Impact of corporate taxes on capital structure Reading
More informationEMBA in Management & Finance. Corporate Finance. Eric Jondeau
EMA in Management & Finance Corporate Finance EMA in Management & Finance Lecture 3: Capital Structure Modigliani and Miller Outline 1 The Capital-Structure Question 2 Financial Leverage and Firm Value
More informationJ B GUPTA CLASSES , Copyright: Dr JB Gupta. Chapter 4 RISK AND RETURN.
J B GUPTA CLASSES 98184931932, drjaibhagwan@gmail.com, www.jbguptaclasses.com Copyright: Dr JB Gupta Chapter 4 RISK AND RETURN Chapter Index Systematic and Unsystematic Risk Capital Asset Pricing Model
More informationAdvanced Corporate Finance. 3. Capital structure
Advanced Corporate Finance 3. Capital structure Objectives of the session So far, NPV concept and possibility to move from accounting data to cash flows => But necessity to go further regarding the discount
More informationChapter 17 Payout Policy
Chapter 17 Payout Policy Chapter Outline 17.1 Distributions to Shareholders 17.2 Comparison of Dividends and Share Repurchases 17.3 The Tax Disadvantage of Dividends 17.4 Dividend Capture and Tax Clienteles
More informationMAY 2018 PROFESSIONAL EXAMINATIONS ADVANCED FINANCIAL MANAGEMENT (PAPER 3.3) QUESTIONS AND MARKING SCHEME
QUESTION ONE MAY 2018 PROFESSIONAL EXAMINATIONS ADVANCED FINANCIAL MANAGEMENT (PAPER 3.3) QUESTIONS AND MARKING SCHEME a) There are many strategic reasons for Multinational Enterprise to undertake foreign
More informationValuing Levered Projects
Valuing Levered Projects Interactions between financing and investing Nico van der Wijst 1 D. van der Wijst Finance for science and technology students 1 First analyses 2 3 4 2 D. van der Wijst Finance
More informationDebt. Firm s assets. Common Equity
Debt/Equity Definition The mix of securities that a firm uses to finance its investments is called its capital structure. The two most important such securities are debt and equity Debt Firm s assets Common
More information2013/2014. Tick true or false: 1. "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.
Question One: Tick true or false: 1. "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. 2. Diversification will normally reduce the riskiness
More informationMeasures of Dividend Policy
Measures of Dividend Policy 154 Dividend Payout = Dividends/ Net Income Measures the percentage of earnings that the company pays in dividends If the net income is negative, the payout ratio cannot be
More informationFCF t. V = t=1. Topics in Chapter. Chapter 16. How can capital structure affect value? Basic Definitions. (1 + WACC) t
Topics in Chapter Chapter 16 Capital Structure Decisions Overview and preview of capital structure effects Business versus financial risk The impact of debt on returns Capital structure theory, evidence,
More informationMicroeconomics of Banking: Lecture 3
Microeconomics of Banking: Lecture 3 Prof. Ronaldo CARPIO Oct. 9, 2015 Review of Last Week Consumer choice problem General equilibrium Contingent claims Risk aversion The optimal choice, x = (X, Y ), is
More informationOSN ACADEMY. LUCKNOW
OSN ACADEMY www.osnacademy.com LUCKNOW 0522-4006074 1 SUBJECT COMMERCE SUBJECT CODE 08 UNIT - VII 9935977317 0522-4006074 2 CONTENT Ch.No. Chapter Name 1. Financial functions 2. Cost of capital 3. Weighted
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 4 26.03.2014 The Capital Structure Decision 2 Maximizing Firm value vs. Maximizing Shareholder Interests If the
More informationApplied Corporate Finance. Unit 5
Applied Corporate Finance Unit 5 Dividend Policy Measures Yield, Payout and Dividend Rate Determinants of Dividend Policy Various schools of though on Dividend Policy Managing Changes in Dividend Policy
More informationEcon 138 Financial and Behavioral Economics. Lecture 1 Introduction + the MM Theorem
Econ 38 Financial and Behavioral Economics Lecture Introduction + the MM Theorem Ulrike Malmendier UC Berkeley Tu, January 22, 2007 Outline. Organization: Syllabus, Course Requirements 2. The Basics of
More informationWeek-2. Dr. Ahmed. Strategic Plan
FINC 5880 Dr. Ahmed Week-2 Name Strategic Plan Financial Plan Projected Financial Statements Additional Funds Needed (AFN, EFN, DFN) Internal and External Funding Evaluation and Control Sales Forecast
More informationProblem Set. Solutions to the problems appear at the end of this document.
Problem Set Solutions to the problems appear at the end of this document. Unless otherwise stated, any coupon payments, cash dividends, or other cash payouts delivered by a security in the following problems
More informationReturning Cash to the Owners: Dividend Policy
Returning Cash to the Owners: Dividend Policy Aswath Damodaran Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate
More informationQuestion # 4 of 15 ( Start time: 07:07:31 PM )
MGT 201 - Financial Management (Quiz # 5) 400+ Quizzes solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Date Monday 31st January and Tuesday 1st February 2011 Question # 1 of 15 ( Start time: 07:04:34 PM
More informationOPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES
OPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES Topics: Consider Modigliani & Miller s insights into optimal capital structure Without corporate taxes è Financing policy is irrelevant With corporate
More informationDeterminants of Capital Structure in Indian Automobile Companies A Case of Tata Motors and Ashok Leyland
Determinants of Capital Structure in Indian Automobile Companies A Case of Tata Motors and Ashok Leyland Prof. R.M. Indi Sinhgad Institute of Business Administration & Research, Pune Abstract: Firms use
More informationFinancial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by:
Wk 11 FINS1613 Notes 13.1 Discuss the effect of Financial Leverage Financial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by: The debt to
More informationDISTRIBUTIONS TO OWNERS: BONUSES, DIVIDENDS, AND REPURCHASES
CHAPTER DISTRIBUTIONS TO OWNERS: BONUSES, DIVIDENDS, AND REPURCHASES 19 Learning Objectives After studying this chapter, readers should be able to Explain how owner distributions differ between large and
More informationLeverage. Capital Budgeting and Corporate Objectives
Leverage Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Overview Capital Structure does not matter!» Modigliani & Miller propositions
More informationTable of Contents. Chapter 1 Introduction to Financial Management Chapter 2 Financial Statements, Cash Flows and Taxes...
Table of Contents Chapter 1 Introduction to Financial Management... 1 22 Importance of Financial Management 2 Finance in the Organizational Structure of the Firm 3 Nature and Functions of Financial Management:
More informationTime value of money-concepts and Calculations Prof. Bikash Mohanty Department of Chemical Engineering Indian Institute of Technology, Roorkee
Time value of money-concepts and Calculations Prof. Bikash Mohanty Department of Chemical Engineering Indian Institute of Technology, Roorkee Lecture - 01 Introduction Welcome to the course Time value
More informationExaminer s report F9 Financial Management June 2015
Examiner s report F9 Financial Management June 2015 General Comments The F9 examination paper consists of Section A, with 20 multiple-choice questions worth two marks each, and Section B containing three
More informationWhat do Microsoft, Lexmark, and Ford have in common? In 2009, all three companies
CHAPTER 14 Capital Structure: Basic Concepts OPENING CASE What do Microsoft, Lexmark, and Ford have in common? In 2009, all three companies made announcements that would alter their balance sheets. Microsoft,
More information(Refer Slide Time: 00:50)
Engineering Economic Analysis Professor Dr. Pradeep K Jha Department of Mechanical and Industrial Engineering Indian Institute of Technology Roorkee Lecture 22 Basic Depreciation Methods: S-L Method, Declining
More informationReview of Dividend Policy and its Impact on Shareholders Wealth Rimza Sarwar and Nadia Naseem
International Journal of Management & Organizational Studies Volume 3, Issue 4, December, 2014 ISSN: 2305-2600 Review of Dividend Policy and its Impact on Shareholders Wealth Rimza Sarwar and Nadia Naseem
More informationChapter 6: Risky Securities and Utility Theory
Chapter 6: Risky Securities and Utility Theory Topics 1. Principle of Expected Return 2. St. Petersburg Paradox 3. Utility Theory 4. Principle of Expected Utility 5. The Certainty Equivalent 6. Utility
More informationRoll Number: B11008 ALSTOM PROJECTS INDIA LIMITED PEER: AREVA T&D INDIA LIMITED Assignment No. 7: Capital Structure
Roll Number: B11008 ALSTOM PROJECTS INDIA LIMITED PEER: AREVA T&D INDIA LIMITED Assignment No. 7: Capital Structure a) The LTD-to-, Interest-Bearing-Liabilities-to- and the TD-to- for the past five years
More informationB Com 3 rd YEAR FINANCIAL MANAGEMENT
B Com 3 rd YEAR FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT UNIT I Financial management is concerned with management of fund. It may be defined as acquisition of fundat optimum cost and its utilization with
More informationSUMMARY OF THEORIES IN CAPITAL STRUCTURE DECISIONS
SUMMARY OF THEORIES IN CAPITAL STRUCTURE DECISIONS Herczeg Adrienn University of Debrecen Centre of Agricultural Sciences Faculty of Agricultural Economics and Rural Development herczega@agr.unideb.hu
More informationX ln( +1 ) +1 [0 ] Γ( )
Problem Set #1 Due: 11 September 2014 Instructor: David Laibson Economics 2010c Problem 1 (Growth Model): Recall the growth model that we discussed in class. We expressed the sequence problem as ( 0 )=
More informationName:... ECO 4368 Summer 2016 Midterm 2. There are 4 problems and 8 True-False questions. TOTAL POINTS: 100
Name:... ECO 4368 Summer 2016 Midterm 2 There are 4 problems and 8 True-False questions. TOTAL POINTS: 100 Question 1 (20 points): A company with a stock price P 0 = $108 had a constant dividend growth
More informationAFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts
AFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts 1 / 24 Outline Background Capital Structure in Perfect Capital Markets Examples Leverage and Shareholder Returns Corporate Taxes 2 / 24
More informationUNIVERSIDAD CARLOS III DE MADRID FINANCIAL ECONOMICS
Javier Estrada September, 1996 UNIVERSIDAD CARLOS III DE MADRID FINANCIAL ECONOMICS Unlike some of the older fields of economics, the focus in finance has not been on issues of public policy We have emphasized
More informationAdvanced Financial Management Bachelors of Business (Specialized in Finance) Study Notes & Tutorial Questions Chapter 3: Cost of Capital
Advanced Financial Management Bachelors of Business (Specialized in Finance) Study Notes & Tutorial Questions Chapter 3: Cost of Capital 1 INTRODUCTION Cost of capital is an integral part of investment
More information