Which combination of the following represents the assumptions of the Walter’s dividend model ? I. The…
James E. Walter's dividend relevance model assumes that the firm has a perpetual life (I), all financing is done solely through retained earnings so all earnings are either…
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Which combination of the following represents the assumptions of the Walter’s dividend model ?
I. The company has a very long or perpetual life.
II. All earnings are either reinvested internally or distributed as dividend.
III. There is no floatation cost for the company.
IV. Cost of capital of the company is constant.
Answer and explanation
Correct answer C
James E. Walter's dividend relevance model assumes that the firm has a perpetual life (I), all financing is done solely through retained earnings so all earnings are either reinvested internally or paid as dividends (II), and the internal rate of return (r) and cost of capital (k) remain constant (IV).
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UGC NET Commerce