wiz-icon
MyQuestionIcon
MyQuestionIcon
3
You visited us 3 times! Enjoying our articles? Unlock Full Access!
Question

A view that the dividend policy of a firm has a bearing on share valuation advocated by James E. Walter is based on which one of the following assumptions?

A
Retained earnings is only source of financing
Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses
B
Cost of capital does not remain constant
No worries! We‘ve got your back. Try BYJU‘S free classes today!
C
Return on investment fluctuates
No worries! We‘ve got your back. Try BYJU‘S free classes today!
D
All of the above
No worries! We‘ve got your back. Try BYJU‘S free classes today!
Open in App
Solution

The correct option is A Retained earnings is only source of financing
Walter’s model on dividend policy states about the relevance concept of a dividend. The concept lays down that a dividend decision of the company affects its valuation. The companies paying higher dividends have more value as compared to the companies that pay lower dividends or that do not pay at all. Walter’s theory uses certain assumptions and one of such assumptions is that all the company's investments are financed through retained earnings.
Thus a dividend policy of a firm has a bearing on share valuation based on this assumption.

flag
Suggest Corrections
thumbs-up
0
similar_icon
Similar questions
View More
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Income Method
ECONOMICS
Watch in App
Join BYJU'S Learning Program
CrossIcon