29 – 4 – 2010 Dr. Mercia Selva Malar Fill in the blanks: • --------- refers to that portion of a firm’s net earnings which are paid out to the shareholders
• There is an --------- relationship between
retained earnings and cash dividend.
• -------------- policy pays out only excess cash
Fill in the blanks • ---------- implies that the value of a firm is unaffected by the distribution of dividend and is determined solely by the earning power and risk of its assets.
• The most comprehensive argument in support of
the irrelevance of dividends is provided by the ---------------- Fill in the blanks • ---------------- implies the distribution of earnings to shareholders and raising an equal amount externally.
• The critical assumptions of MM approach are:
----------------, ---------------------, -------------------- and -------------------. Fill in the blanks • ----------------- are the different rates of taxes applicable to dividend and capital gains.
• ----------------- is the cost involved in raising
capital from the market Fill in the blanks • ------------ are costs involved in selling securities by the shareholders
• According to Walter’s model the value of the
share is -------------- proportion to the D/P ratio Fill in the blanks • The test of adequate acceptable opportunities for the firm while considering its dividend policy is the relation between --------- and ----------------
• Walter’s model and Gordon’s model are
applicable to firms in which all financing is done through ------------- and with ------------- leverage. State True or False:
• Rising tax rates tend to depress dividends.
• Smaller the size of the issue smaller is the percentage of floatation cost • Effective tax rate of corporate in India is 30 per cent • The three models of dividend relevance are: Walter’s model, Gordon’s Model and Miller’s Model • MM Model speaks of dividend irrelevance Answers • Dividend • Inverse • Residual dividend • Dividend irrelevance • MM hypothesis Answers • Arbitrage • perfect capital markets, no taxes, the given investment policy does not change and perfect certainty on future profits and investments • Tax differentials • Floatation costs • Transaction costs Answers • not related • ROI and cost of capital • Retained earnings, zero State True or False: Answers • True • False • False • False • True