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
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

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.