The correct answer is A. 1 and 2.
- Dividend payout ratio refers to that portion of total earnings which is distributed among equity shareholders of the company.
This is a correct statement. The dividend payout ratio is calculated by dividing the total dividends paid by a company in a given year by its net income for that year. A high dividend payout ratio indicates that a company is returning a large portion of its earnings to shareholders, while a low dividend payout ratio indicates that a company is retaining more of its earnings to reinvest in the business.
- ‘Bird in hand’ argument is given by Gordon’s model.
This is also a correct statement. The bird-in-the-hand argument is a theory that suggests that investors prefer to receive dividends in cash rather than reinvesting them in the company. This is because dividends are a guaranteed return on investment, while the return on investment from reinvesting in the company is uncertain.
- MM model suggest that dividend payment is very relevant for value of the firm.
This is an incorrect statement. The Modigliani-Miller (MM) model is a theory that suggests that the value of a firm is not affected by its dividend policy. This is because investors can always choose to sell shares of a company if they want to receive cash, and they can always reinvest dividends if they want to keep their money invested in the company.
- Walter’s Model suggests that dividend payment does not affect the market price of the share.
This is also an incorrect statement. The Walter model is a theory that suggests that dividend payments do affect the market price of a share. This is because dividend payments are a signal to investors about the company’s financial health and future prospects.