The concepts are: 1.
Dividend decision is the financing decision of a business. In the revised model, he suggested that even when r = k, dividend policy affects the value of shares on account of uncertainty of future, shareholders discount future dividends at a higher rate than they discount near dividends. Interim dividends are dividend payments made before a company's Annual General Meeting (AGM) and final financial statements. The MM hypothesis of irrelevance of dividends is based on the following assumptions: (iii) Information about the company available to all without any cost. This argument is described as bird-in-the hand argument, i.e. This article throws light upon the top three theories of dividend policy. Thus, the decision to pay dividends or retain the earnings may be taken as a residual decision. In short, under this condition, the firm should distribute smaller dividends and should retain higher earnings.
(iii) The assumption that cost of capital (k) will remain constant also does not hold good. For example, if a company, having investment opportunities, distributes all its earnings among the shareholders, it will have to raise additional funds from external sources. The investors have to pay brokerage, fees, etc. This is an important date for any company that has many shareholders, including those that trade on exchanges, to enable reconciliation of who is entitled to be paid the dividend. What is the value of its share if the required rate of return is 15%? Report a Violation 10.
Economists Merton Miller and Franco Modigliani argued that a company's dividend policy is irrelevant and it has no effect on the price of a firm's stock or its cost of capital. The dividends and dividend policy of a company are important factors that many investors consider when deciding what stocks to invest in. As observed by M.M. Using MM model and assuming no taxes, ascertain the price of the company’s share as it is likely to prevail at the end of the year (i) when dividend is declared, and (ii) when no dividend is declared. According to M-M hypothesis, dividend policy of a firm will be irrelevant even if uncertainty is considered.