the firm offers an increasing amount of dividend per share at a given level of price per share
the firm has a finite life
the cost of capital of the firm is variable
equal to current assets plus current liabilities including bank borrowings
Answer is Right!
Answer is Wrong!
The correct answer is: A. the firm offers an increasing amount of dividend per share at a given level of price per share.
Walters’ model on dividend policy assumes that the firm offers an increasing amount of dividend per share at a given level of price per share. This means that the firm’s dividend policy is based on the assumption that investors are willing to pay a higher price for a share of stock if the firm pays a higher dividend.
The other options are incorrect because:
- Option B is incorrect because Walters’ model does not assume that the firm has a finite life.
- Option C is incorrect because Walters’ model does not assume that the cost of capital of the firm is variable.
- Option D is incorrect because Walters’ model does not assume that the firm’s current assets plus current liabilities including bank borrowings are equal to its total assets.