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Theory of Irrelevance - M.M Approach - Dividend Decision (in Hindi)
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Heena Malhotra
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U
Unacademy user
sir Q.7 *a answer balban ni hoga???
mam capital structure mai th. hai mm r esme bi th. hai mm dono diff hai ???
Heena Malhotra
a year ago
Han bilkul, dono different h but dono MM ke dwara di gyi thi..
  1. Dividend Decisions By Heena Malhotra


  2. Irrelevance Theory (Dividend is irrelevant) M.M. Approach Theories of Dividend Walter Model Relevance Theory (Dividend is relevant) Gordon Model By Heena Malhotra


  3. Modigliani and Miller (M.M) HYPOTHESIS o Modigliani - Miller theory was proposed by Franco Modigliani and Merton Miller in 1961. o MM approach is in support of the irrelevance of dividends i.e. firm's dividend policy has no effect on its value of assets. By Heena Malhotra


  4. Assumptions of M.M Hypothesis MM hypothesis is based on the following assumptions: Perfect capital markets: The firm operates in a market in which all investors are rational and information is freely available to all. No taxes or no tax discrimination between dividend income and capital appreciation (capital gain): This assumption is necessary for the universal applicability of the theory, since, the tax rates or provisions to tax income may be different in different countries. .Fixed investment policy: It is necessary to assume that all investment should be financed through equity only, since, implication after using debt as a source of finance may be difficult to understand. Further, the impact will be different in different cases. No floatation or transaction cost: Similarly, these costs may differ country to country or market to market. .Risk of uncertainty does not exist. Investors are able to forecast future prices and dividend with certainty and one discount rate is appropriate for all securities and all time periods. By Heena Malhotra


  5. According to MM hypothesis Market value of equity shares of its firm depends solely on its earning power and not influence by the manner in which its earnings are split between dividends is and retained earnings. .Market value of equity shares is not affected by dividend size. MM hypothesis is primarily based on the arbitrage argument. Through the arbitrage process, MM hypothesis discusses how the value of the firm remains same whether the firm pays dividend or not. Here PD P- Price in the beginning of the period P1- Price at the end of the period. D1 Dividend at the end of the period. K- Cost of equity/ rate of capitalization/ discount rate By Heena Malhotra


  6. 6saleHt mawieRendg eSvihatheeesout of new issue of equity shares. I(E-nD1) OME P1 1+Ke By Heena Malhotra


  7. o MM Hypothesis can be explained in another form also presuming thot investmentrequired by the firm on the account of payment of dividends is financed out of new issue of equity shares. I(E-nD1) P1 (n+m)P1-(I-E 1+Ke By Heena Malhotra


  8. Advantages of MM Hypothesis Various advantages of MM Hypothesis are as follows 1. This model is logically consistent. 2. It provides a satisfactory framework on dividend policy with the the concept of Arbitrage process. Limitations of MM Hypothesis Various Limitations of MM Hypothesis are as follows 1. Validity of various assumptions is questionable. 2. This model may not be valid under uncertainty By Heena Malhotra


  9. Irrelevance Theory (Dividend is irrelevant) M.M. Approach Theories of Dividend Walter Model Relevance Theory (Dividend is relevant) Gordon Model By Heena Malhotra


  10. Residual Approachh By Heena Malhotra