+1-585-535-1023
+44-208-133-5697
+61-280-07-56971. What is meant by Dividend ?
2. Define Dividend.
3. What is cash dividend ?
4. What is meant by stock dividend?
5. Explain the concept of script dividend.
6. What is dividend pay-out ratio ?
7. List out the two main theories of dividend.
8. What is meant by dividend policy ?
9. Describe the factors that influence the dividend policy of a firm.
10. Write note on dividend policy in practice.
11. What are the different types of dividend policies ?
12. How for do you agree that dividends are irrelevant ?
13. Explain the various factors which influence the dividend decision of a firm.
14. “A firm should follow a policy of very high dividend pay-out”. Do you agree? Why or why not?
15. What do you understand by a stable dividend policy ? Why should it be followed ?
PROBLEMS AND SOLUTIONS
Problem 1. Following are the details regarding three companies A Ltd, B Ltd and C Ltd.
A Ltd B Ltd C Ltd
R = 15% R = 5% R = 10%
Ke = 10% Ke = 10% Ke = 10%
E = $ 8 E = $ 8 E = $ 8
Calculate the value of an equity share of each of these companies applying Walter’s
formula when dividend payment ratio (DIP ratio) is (a) 50%, (b) 75%, (c) 25%.
What conclusion do you draw ?
Solution:
Prof Walter has suggested the following formula for determining the market value of a share.
P = D +r/ke (E-D) ke
P = Market price of an equity share
D = Dividend per share
r = Internal rate of return
E = Earning per share
Ke = Cost of equity capital or capitalisation rate.
Value of an equity share according to Walter’s Formula
Conclusion
Based upon the above calculation
(i) A Ltd : This Company may be characterised as a growth firm.
(ii) B Ltd : This Company may be characterised as a declining firm.
(iii) C Ltd : This Company may be characterised as a normal firm.
