The Walter model of dividend decisions focuses on the relationship between:a.Dividend payout ratio and earnings per share (EPS)b.Dividend payout ratio and stock pricec.Dividend payout ratio and return on investment (ROI)d.Dividend payout ratio and cost of equity
Question
The Walter model of dividend decisions focuses on the relationship between:a.Dividend payout ratio and earnings per share (EPS)b.Dividend payout ratio and stock pricec.Dividend payout ratio and return on investment (ROI)d.Dividend payout ratio and cost of equity
Solution
The Walter model of dividend decisions focuses on the relationship between:
d. Dividend payout ratio and cost of equity
The Walter model, developed by James E. Walter, is a theoretical model that shows the relevance of dividend policy and its impact on the value of a firm. It suggests that the choice of dividend policies almost always affects the value of the enterprise. The model clearly states that the dividend policy is determined by the relationship between the internal rate of return (r) and the cost of capital (k). If r > k, the company should retain earnings, but if r < k, it should distribute dividends.
Similar Questions
The Gordon model of dividend decisions emphasizes the relationship between:a.Dividend growth rate and stock priceb.Dividend yield and earnings per share (EPS)c.Dividend payout ratio and return on investment (ROI)d.Dividend payout ratio and cost of equity
The dividend decision refers to:a.Determining the amount of dividend to be paidb.Deciding whether to pay dividends or reinvest earningsc.Choosing the form of dividend paymentd.Evaluating the impact of dividends on stock price
The bird-in-hand theory of dividend policy suggests that investors prefer:a.Higher dividends today rather than uncertain capital gains in the futureb.Lower dividends today in exchange for potential capital gains in the futurec.Dividends paid in the form of additional shares rather than cashd.Dividends paid irregularly based on company performance
Factors affecting Dividend Decision
In theory, a high dividend payout policy should result for the company inALow earnings reinvestment rate and lower growth of net profitBHigh earnings reinvestment rate and lower growth of net profitCLow earnings reinvestment rate and higher growth of net profitDHigh earnings reinvestment rate and higher growth of net profit
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