Capital budgeting is the process of evaluating investments and large expenses to obtain the best returns. It involves decisions to invest money for over one year. The objectives are selecting profitable projects, controlling capital expenditures, and finding funding sources. The capital budgeting process includes identifying projects, screening and evaluating them, selecting projects, implementing projects, and reviewing performance. Significant benefits include being an essential financial management tool, exposing risk/uncertainty, and providing effective cost control. Common evaluation methods are payback period, accounting rate of return, net present value, internal rate of return, and profitability index. Dividend policy determines how earnings are distributed between retaining profits and paying dividends. Major dividend theories are Walter's model, Gordon's model,
Chapter- III Techniques of Capital Budgeting
Concept, Significance, Nature and classification of capital budgeting decisions, cash flow computation- Incremental approach; Evaluation criteria- Pay Back Period, ARR, NPV, IRR and PI methods; capital rationing, Capital budgeting under risk and uncertainty.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Chapter- III Techniques of Capital Budgeting
Concept, Significance, Nature and classification of capital budgeting decisions, cash flow computation- Incremental approach; Evaluation criteria- Pay Back Period, ARR, NPV, IRR and PI methods; capital rationing, Capital budgeting under risk and uncertainty.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
NO1 Uk Black Magic Specialist Expert In Sahiwal, Okara, Hafizabad, Mandi Bah...Amil Baba Dawood bangali
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
NO1 Uk Rohani Baba In Karachi Bangali Baba Karachi Online Amil Baba WorldWide...Amil baba
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
NO1 Uk Divorce problem uk all amil baba in karachi,lahore,pakistan talaq ka m...Amil Baba Dawood bangali
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
2. CAPITAL BUDGETING
Capital budgeting is a process of evaluating investments and huge expenses in
order to obtain the best returns on investment.
The process of decisions to invest a sum of money when the expected results
will flow after the lapse of a period of more than one year is called Capital
Budgeting.
It also includes the process of decision regarding disinvestment, i.e., a decision
to sell off an undertaking or a part of it.
3. Objectives of Capital budgeting
1. Selecting profitable projects
2. Capital expenditure control
3. Finding the right sources for funds
4. CAPITAL BUDGETING PROCESS:
A) Project identification and generation:
The first step towards capital budgeting is to generate a proposal for investments. There
could be various reasons for taking up investments in a business.
B) Project Screening and Evaluation:
This step mainly involves selecting all correct criteria’s to judge the desirability of a
proposal. This has to match the objective of the firm to maximize its market value. The
tool of time value of money comes handy in this step.
C) Project Selection:
There is no such defined method for the selection of a proposal for investments as
different businesses have different requirements.
5. D) Implementation:
Money is spent and thus proposal is implemented. The different responsibilities like
implementing the proposals, completion of the project within the requisite time period
and reduction of cost are allotted.
E) Performance review:
The final stage of capital budgeting involves comparison of actual results with the
standard ones. The unfavorable results are identified and removing the various
difficulties of the projects helps for future selection and execution of the proposals.
6. SIGNIFICANCE OF CAPITAL BUDGETING
Capital budgeting is an essential tool in financial management
Capital budgeting provides a wide scope for financial managers to evaluate
different projects in terms of their viability to be taken up for investments
It helps in exposing the risk and uncertainty of different projects
It helps in keeping a check on over or under investments
The management is provided with an effective control on cost of capital
expenditure projects
Ultimately the fate of a business is decided on how optimally the available
resources are used
7.
8. Payback Period Method:
As the name suggests, this method refers to the period in which the proposal
will generate cash to recover the initial investment made. It purely emphasizes
on the cash inflows, economic life of the project and the investment made in the
project, with no consideration to time value of money.
However, as the method is based on thumb rule, it does not consider the
importance of time value of money and so the relevant dimensions of
profitability.
10. Accounting rate of return method (ARR):
This method helps to overcome the disadvantages of the payback period
method.
Accounting Rate of Return (ARR) is the average net income an asset is expected
to generate divided by its average capital cost, expressed as an annual
percentage. The ARR is a formula used to make capital budgeting decisions.
These typically include situations where companies are deciding on whether or
not to proceed with a specific investment (a project, an acquisition, etc.) based
on the future net earnings expected compared to the capital cost.
11. However, this method also ignores time value of money and doesn’t consider
the length of life of the projects. Also it is not consistent with the firm’s objective
of maximizing the market value of shares.
ARR= Average income/Average Investment
12. Discounted cash flow method:
The discounted cash flow technique calculates the cash inflow and outflow
through the life of an asset.
These are then discounted through a discounting factor. The discounted cash
inflows and outflows are then compared. This technique takes into account the
interest factor and the return after the payback period.
13. Net present Value (NPV) Method:
This is one of the widely used methods for evaluating capital investment
proposals. In this technique the cash inflow that is expected at different periods
of time is discounted at a particular rate. The present values of the cash inflow
are compared to the original investment. If the difference between them is
positive (+) then it is accepted or otherwise rejected. Net present Value (NPV)
Method:
14.
15. Where A1, A2…. represent cash inflows, K is the firm’s cost of capital, C is the cost of the
investment proposal and n is the expected life of the proposal. It should be noted that the cost
of capital, K, is assumed to be known, otherwise the net present, value cannot be known.
NPV = PVB – PVC
where,
PVB = Present value of benefits
PVC = Present value of Costs
16. Internal Rate of Return (IRR):
This is defined as the rate at which the net present value of the investment is
zero.
The discounted cash inflow is equal to the discounted cash outflow. This
method also considers time value of money. It tries to arrive to a rate of interest
at which funds invested in the project could be repaid out of the cash inflows.
However, computation of IRR is a tedious task.
17.
18. If IRR > WACC then the project is profitable.
If IRR > k = accept
If IR < k = reject
19. Profitability Index (PI):
It is the ratio of the present value of future cash benefits, at the required rate of return to the
initial cash outflow of the investment. It may be gross or net, net being simply gross minus one.
The formula to calculate profitability index (PI) or benefit cost (BC) ratio is as follows.
PI = PV cash inflows/Initial cash outlay A,
20. PI = NPV (benefits) / NPV (Costs)
All projects with PI > 1.0 is accepted.
21. DIVIDEND POLICY
"Dividend policy determines the ultimate distribution of the firm's earnings between retention
(that is reinvestment) and cash dividend payments of shareholders.“
In other words, dividend policy is the firm's plan of action to be followed when dividend
decisions are made. It is the decision about how much of earnings to pay out as dividends versus
retaining and reinvesting earnings in the firm.
23. 1. Walter’s model:
Professor James E. Walter argues that the choice of dividend policies almost always affects the
value of the enterprise. His model shows clearly the importance of the relationship between the
firm’s internal rate of return (r) and its cost of capital (k) in determining the dividend policy that
will maximize the wealth of shareholders.
24. Walter’s model is based on the following
assumptions:
1. The firm finances all investment through retained earnings; that is debt or new equity is not
issued;
2. The firm’s internal rate of return (r), and its cost of capital (k) are constant;
3. All earnings are either distributed as dividend or reinvested internally immediately.
4. Beginning earnings and dividends never change. The values of the earnings pershare (E), and
the divided per share (D) may be changed in the model to determine results, but any given
values of E and D are assumed to remain constant forever in determining a given value.
25. His proposition may be summed up as
under:
(a) When r > k (Growth Firms):
(b) When r<k (Declining Firms):
(c) When r = k (Normal Firms)
According to the Walter’s model, if r > k, the firm is able to earn more than what the
shareholders could by reinvesting, if the earnings are paid to them. The implication of r > k is
that the shareholders can earn a higher return by investing elsewhere. If the firm has r = k, it is a
matter of indifferent whether earnings are retained or distributed.
26. where, P = Market price per share;
D = Dividend per share;
E = Earning per share;
r = Internal rate of return;
k = Cost of capital or capitalization rate.
27. Criticisms:
(i) Walter assumes that all investments are financed only be retained earnings and not by
external financing which is seldom true in real world situation and which ignores the benefits of
optimum capital structure.
(ii) Walter also assumes that the internal rate of return (r) of a firm will remain constant which
also stands against real world situation.
(iii) Finally, this model also assumes that the cost of capital, k, remains constant which also does
not hold good in real world situation.
28. Gordon’s Model:
Another theory on relevance of dividend has been developed by Myron Gordon.
Gordon’s model is based on the following assumptions:
(i) The firm is an all-equity firm;
(ii) No external financing is available or used. Only retained earnings are used to finance the
investment programmes;
(iii) The internal rate of return, r, and the capitalization rate or cost of capital, k, is constant;
(iv) The firm has perpetual or long life;
29. (v) Corporate taxes do not exist;
(vi) The retention ratio, b, once decided upon is constant. Thus the growth rate,
g = br, is also constant;
(vii) k > br = g.
According to Gordon’s model, the market value of a share is equal to the present value of an
infinite future stream of dividends.
30.
31. However, his proposition may be summed
up as under:
(a) When r > k (Growth Firms):
When r > k, the value per share P increases since the retention ratio, b, increases, i.e., P
increases with decrease in dividend pay-out ratio.
(b) When r < k (Declining Firms):
When r<k, the value per share P decreases since the retention ratio b, increases, i.e., P increases
with increase in dividend pay-out ratio.
c) When r = k (Normal Firms):
When r = k, the value of the firm is not affected by dividend policy and is equal to the book value
of assets, i.e., when r = k, dividend policy is irrelevant.
32. Modigliani-Miller (M-M) Hypothesis:
Modigliani-Miller hypothesis provides the irrelevance concept of dividend in a comprehensive
manner. According to them, the dividend policy of a firm is irrelevant since, it does not have any
effect on the price of shares of a firm, i.e., it does not affect the shareholders’ wealth.
They expressed that the value of the firm is deter-mined by the earnings power of the firms’
assets or its investment policy and not the dividend decisions by splitting the earnings of
retentions and dividends.
33. M-M Hypothesis — Assumptions:
1. Perfect capital market.
2. Investors are rational.
3. There are no tax.
4. The firm has fixed investment policy.
5. No risk or uncertainty.
34. P1 can be calculated with the help of the following formula.
P1 = Po (1+Ke) – D1
35. Criticism of M-M Hypothesis:
(i) Tax Differential:
M-M hypothesis assumes that taxes do not exist, in reality, it is impossible. On the contrary, the
shareholders have to pay taxes on the dividend so received or on capital gains.
(ii) Existence of Floatation Costs:
M-M also assumes that both internal and external financing are equivalent. It indicates that if
dividend is paid in cash, a firm is to raise external funds for its own investment opportunities.
36. (iii) Existence of Transaction Costs:
M-M also assumes that whether the dividends are paid or not, the shareholders” wealth will be
the same. When the dividends are not paid in cash to the shareholder, he may desire current
income and are as such, he can sell his shares.
(iv) Diversification:
M-M considers that the discount rate should be the same whether a firm uses internal or
external financing. But, practically, it does not so happen.