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Theory of Irrelevance - Residual Approach & Theory of Relevance - Walter Model (in Hindi)
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Heena Malhotra
Believe in Conceptual Learning.

U
Unacademy user
Great job sir.... Thanks a lot for such a great contribution.... Love you sir... Keep it up
ma'am arbitrage process thek se samjh nh aaya
mam positive and negative relationship between size of dividend & market price of share in growth and decline company under walter model explain krdo
Alisha Gupta
a year ago
mam apne next gordon model m bhi samjhaea h now its clear no doubt thanx 🙂
Heena Malhotra
a year ago
:)
Mam bilkul ache se smj aa gya Thank you Mam🙏
  1. Dividend Decisions By Heena Malhotra


  2. Residual Approachh By Heena Malhotra


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


  4. Assumptions of Walter Model Walter approach is based on the following assumptions: .All investments proposals of the firm are to be financed through retained earnings only ' rate of return & 'K cost of capital are constant . 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 .No floatation or transaction cost: Similarly, these costs may differ country to country or market to market. The firm has perpetual life By Heena Malhotra


  5. IRR, K and optimum payout As we know Walter approach consider two factors, following is the conclusion of Walter model Condition Correlation between Optimum d of r vs K Size of Dividend and payout ratio Company Market Price of share Negative No correlation Every payout ratio is Growth Zero Constant optimum Decline Positive 100% By Heena Malhotra


  6. The relationship between dividend and share price based on Walter's formula is shown below: Market Price (P)- DE-DxrK Where, P- Market Price of the share. E- Earnings per share D Dividend per share. K- Cost of equity/ rate of capitalization/ discount rate. r Internal rate of return/return on investment By Heena Malhotra


  7. aigniarbasactwonthedfelowing share valuation model. By Heena Malhotra


  8. Walter has developed a mathematical equation to ascertain the market price of a share which enable a firm to arrive at the appropriate dividend decision. His equation is based on the following share valuation model. Ke-g By Heena Malhotra


  9. o Walter has developed a mathematical equation to ascertain the market price of a share which enable a firm to arrive at the appropriate dividend decision. His equation is based on the following share valuation model. Ke-g By Heena Malhotra


  10. Advantages of Walter Model 1. The formula is simple to understand and easy to compute. 2. It can envisage different possible market prices in different situations and considers internal rate of return, market capitalisation rate and dividend payout ratio in the determination of market value of shares. Limitations of Walter Model The formula does not consider all the factors affecting dividend policy and share prices. Moreover, determination of market capitalisation rate is difficult. Further, the formula ignores such factors as taxation, various legal and contractual obligations, management policy and attitude towards dividend policy and so on. 1. 2. By Heena Malhotra