Discuss: Miller and Scholes (1972) model of corporate dividend policy that assumed market efficiency Jensen and Benington (1973) challenge on efficient market hypothesis Fama and French (1992) proposed three factor model
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Discuss:
- Miller and Scholes (1972) model of corporate dividend policy that assumed
market efficiency - Jensen and Benington (1973) challenge on efficient market hypothesis
- Fama and French (1992) proposed three factor model
Step by step
Solved in 3 steps
- Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its estimated value of operations? What is its estimated total corporate value? (This is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?Use BMs data and the free cash flow valuation model to answer the following questions: (1) What is its estimated value of operations? (2) What is its estimated total corporate value? (This is the entity value.) (3) What is its estimated intrinsic value of equity? (4) What is its estimated intrinsic stock price per share?Modigliani and Miller on the one hand, and Gordon and Linter on the other hand, have expressed strong views regarding the effect of dividend policy of a firms cost of capital and value. In this essence, what are the MM's and GL's views regarding the effect o dividend policy on the cost of capital and stock prices?
- Modigliani and Miller (MM), on the one hand, and Gordon and Lintner (GL), on the otherhand, have expressed strong views regarding the effect of dividend policy on a firm’s costof capital and value.a. In essence, what are MM’s and GL’s views regarding the effect of dividend policy onthe cost of capital and stock prices?b. How could MM use the information content, or signaling, hypothesis to counter theiropponents’ arguments? If you were debating MM, how would you counter them?c. How could MM use the clientele effect concept to counter their opponents’ arguments?If you were debating MM, how would you counter them?Which of the following theories is supported by the argument that shareholders can transform a company dividend policy into a different policy by means of investors buying and selling on their own account? a. dividend irrelevance theory b. "bird-in-the-hand" theory C. residual distribution model d. tax preference theoryWrite out the equation of corporate value model, and why there is a need of corporate value model for valuing stocks, when you can easily use the dividend model?
- What are the real-world factors that would encourage firms to follow a high dividend policy.The idea that changes in dividend policy reflects managers' views about the firm's future earnings is known as: a) Modigliani and Miller Theory b) Payoff Theory c) Dividend Signaling Hypothesis d) Pecking Order HypothesisWhat are the issues involve in implementing the divident growth model approach and the security market line approach in computing the cost of equity of a firm
- which one is correct please confirm? QUESTION 30 The dividend ____ states that investors will tend to be attracted to firms that have dividend policies consistent with the investor's objectives. a. "clientele effect" b. "informational content" c. passive residual theory d. signalhe concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient, the price of a security—such as a share of a particular corporation’s common stock—should be (equal to or more than) the present value estimate of the firm’s expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock). Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to “beat” the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Identify the form of capital market efficiency under the efficient market hypothesis…Discuss the critical issues involve in implementing the “Dividend Growth Model Approach” and the “Security Market Line Approach (SML)” in computing the cost of equity of a firm.
