59 It is assumed that the Cost of equity and rate of return are both constant under Walter'sModel of Dividend Relevance, if the cost of equity is higher than the rate of return, it is optimalthat *O All the eamings for the period shall be distributed to shareholdersO None of the choices is correct.O No dividend to be given to shareholdersO The firm is indifferent as to distribute dividends or to reinvest the income

Dividend is the amount of money which is given to the shareholders of the company from the earnings…

Answered: It is assumed that the Cost of equity…

It is assumed that the Cost of equity and rate of return are both constant under Walter's Model of Dividend Relevance, if the cost of equity is higher than the rate of return, it is optimal that *

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 7QTD

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

It is assumed that the Cost of equity and rate of return are both constant under Walter's
Model of Dividend Relevance, if the cost of equity is higher than the rate of return, it is optimal
that *
O All the eamings for the period shall be distributed to shareholders
O None of the choices is correct.
O No dividend to be given to shareholders
O The firm is indifferent as to distribute dividends or to reinvest the income

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It is assumed that the Cost of equity and rate of return are both constant under Walter’s Model of Dividend Relevance, if the cost of equity is higher than the rate of return, it is optimal that a. All the earnings for the period shall be distributed to shareholders b. No dividend to be given to shareholders c. The firm is indifferent as to distribute dividends or to reinvest the income d. None of the choices is correct.
If you were to argue that the firm's cost of equity, rs, increases as the dividend payout decreases, you would be making an argument ____ with MM's dividend irrelevance theory, and ____ with the theory that investors prefer dividends received in the current period rather than capital gains received in the future. Group of answer choices inconsistent; inconsistent consistent; inconsistent inconsistent; consistent consistent; consistent The argument above does not make sense; neither theory involves the cost of equity capital.
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