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business
intermediate financial management
Taxmans Fundamentals Of Financial Management 14th Edition R.P. Rustagi - Solutions
Gross Working Capital is equal to :(a) Total Assets(b) Total Liabilities(c) Total Current Assets(d) Total Current Liabilities
Management of working capital implies trade-off between:(a) Cost and Revenue(b) Assets and Liabilities(c) Debtors and Creditors(d) Liquidity and Profitability
XYZ Ltd. has obtained the following data concerning the average working capital cycle for other companies in the same industry :Raw Material stock turnover 20 Days Credit received –40 Days Work-in-progress turnover 15 Days Finished Goods stock turnover 40 Days Debtor’s collection period 60 Days
Following Annexer information is collected from the record of Sunder Manufacturing Ltd. :Cost of Goods Sold 8,00,000 Cost of Production 500,000 Raw Material consumed during the year 6,00,000
What are the different short term sources of funds?
How and what are the considerations in management of individual current assets?
What is operating cycle and how is it determined ?
What are the different approaches to financing of working capital requirement?
What is Working Capital Management and what factors determine the working capital requirement?
What is stock dividend? What is its rationale?
‘Issue of Bonus shares does not affect the liquidity position of the company’. Comment on the above in the light of effects of Bonus.
“Stability in dividend payment has a marked bearing on the market price of a share of a firm”. Explain.
Explain the relationship between earnings, cash flows and dividend payout.
Discuss the Walter’s model and Gordon’s model vis-a-vis dividend policy.
Why is dividend policy important for a firm? Also discuss the various determinants of a dividend policy in a company.
What are the effects of bonus issue on EPS and market price of a share ? [B.Com. (H.), D.U., 2013]
To what extent are firms able to establish a definite longrun dividend policy ? What factors would affect these policies? To what extent might these policies affect market value of a firm’s securities ? Explain.
What is “informational contents” of dividend payment ?Explain how does it affect share value ?[B.Com. (H.), D.U., 2008, 2018]
“Financial management can use dividend policy to maximize the wealth position of equity holders”. Explain in detail the above statement with reference to the determinants of dividend policy.
Explain briefly the factors which influence the dividend policy of a firm.
Why do companies pay dividends? Explain.
“The primary purpose for which a firm exists is the payment of dividend. Therefore, irrespective of the firm’s needs and the desires of shareholders, a firm should follow a policy of very high dividend payout”. Do you agree ?
What do you mean by the Optimal Dividend Policy ?Explain.
What are the main determinants of Dividend Policy of a firm ?
What of the two dividend policies, Steady dividends or dividends fluctuating with earnings, would you recommend? Would your recommendation be different for a new company, as district from one which has been in existence for a period of ten years.
Explain Stable Dividend Policy. What is the significance of stability of dividend?
Write short notes on:(a) Dividend Payout Ratio,(b) Stability of Dividends.(i) Stock-split. [B.Com. (H.), D.U., 2014]
Which of the following is not relevant for dividend payment for a year ?(a) Cash flow position(b) Profit position(c) Paid up capital(d) Retained Earnings
Which of the following is not considered in Lintner’s Model ?(a) Dividend payout ratio(b) Current EPS(c) Speed of Adjustment(d) Preceding year EPS
In stock dividend,(a) Authorized capital always increases(b) Paid up capital always increases(c) Face value per share decreases(d) Market price for share decreases
Stock split is a form of :(a) Dividend Payment(b) Bonus issue(c) Financial restructuring(d) Dividend in kind
Stability of dividend policy means that(a) Same amount of dividend be paid every year(b) Dividends be paid regularly two-three time in a year(c) Extra dividend be paid every year(d) There need not be much variation in dividend payment over years.
Which of the following is an element of dividend policy ?(a) Production capacity(b) Change in Management(c) Informational content(d) Debt service capacity
Which of the following is not a type of dividend payment?(a) Bonus Issue(b) Right Issue(c) Share Split(d) Both (b) and (c)
‘Constant Dividend Per Share’ Policy is considered as :(a) Increasing Dividend Policy(b) Decreasing Dividend Policy(c) Stable Dividend Policy(d) None of the above
Every company should follow :(a) High Dividend Payment(b) Low Dividend Payment(c) Stable Dividend Payment(d) Fixed Dividend Payment
In India, if dividend on equity shares is not paid within 30 days it is transferred to Investors Education and Protection Fund in :(a) 2 days(b) 3 days(c) 4 days(d) 7 days
In India, Dividend Distribution tax is paid on :(a) Equity Share(b) Preference Share(c) Debenture(d) Both (a) and (b)
Dividends are paid out of :(a) Accumulated Profits(b) Gross Profit(c) Profit after Tax(d) General Reserve
Which of the following generally not result in increase in total dividend liability ?(a) Share-split(b) Right Issue(c) Bonus Issue(d) All of the above
Shares of face value of 10 are 80% paid up. The company declares a dividend of 50%. Amount of dividend per share is :(a) 5(b) 4(c) 80 (d) 50
Dividend Distribution Tax is payable by :(a) Shareholders to Government(b) Shareholders to Company(c) Company to Government(d) Holding to Subsidiary Company
Dividend declared by a company must be paid in :(a) 20 days(b) 30 days(c) 32 days(d) 42 days
Dividend Payout Ratio is :(a) PAT ÷ Capital(b) DPS ÷ EPS(c) Pref. Dividend ÷ PAT(d) Pref. Dividend ÷ Equity Dividend
XYZ company expects with some degree of certainty to generate the following profits and to have the following capital investment during the next five years.(Figures in ’000)Year 1 2 3 4 5 Net Income 5,000 4,000 2,500 2,000 1,500 Investment 2,000 2,500 3,200 4,000 5,000 The company
It currently has 50,000 outstanding shares selling at 100 each. The firm is contemplating the declaration of 8 dividend at the end of the current fiscal year which has just started.Given the assumption of MM, answer the following questions :(i) What will be the price of the share at the end of
A textile company belongs to a risk-class for which the appropriate PE ratio is
The present share capital of A Ltd. consist of 1,000 shares selling at 100 each. The company is contemplating a dividend of 10 per share at the end of the current financial year. The company belongs to a risk class for which appropriate capitalization rate is 20%.The company expects to have a
The ABC Ltd., currently has outstanding 1,00,000 shares selling at 100 each. The firm is considering to declare a dividend of 5 per share at the end of the current fiscal year. The firm’s opportunity cost of capital is 10%. What will be the price of the share at the end of the year if (i) a
The shares are currently being quoted at par in the market. The company now intends to pay a dividend of 2 per share for the current calendar year. It belongs to a risk-class whose appropriate capitalization rate is 15%. Using Modigliani-Miller and assuming no taxes, ascertain the price of the
XYZ Ltd. had 50,000 equity shares of 10 each outstanding on January
The Agro-Chemicals Company belongs to a risk class for which the appropriate capitalization rate is 10%. It currently has 1,00,000 shares selling at 100 each. The firm is contemplating the declaration of 5 as dividend at the end of the current financial year, which has just begun. What will be
Calculate the market price of a share of ABC Ltd.under (i) Walter’s formula; and(ii) dividend growth model from the following data :Earnings per share 5 Dividend per share 3 Cost of capital 16%Internal rate of return on investment 20%Retention ratio 40%
The market rate of discount applicable to the company is 12.5%. Retained earnings can be employed to yield a return of 10%. The company is considering a payout of 25%, 50% and 75%. Which of these would maximize the wealth of shareholders.
The earnings per share of a company are
A company has a total investment of 5,00,000 in assets, and 50,000 outstanding common shares at 10 per shares (par value). It earns a rate of 15% on its investment, and has a policy of retaining 50% of the earnings. If the appropriate discount rate of the firm is 10 per cent, determine the
The earnings per share of a Company are 8 and the rate of capitalization applicable to the company is 10%. The company has before it an option of adopting a payout ratio of 25% or 50% or 75%. Using Walter’s formula of dividend payout compute the market value of the company’s share if the
It has rate of return of 15% and the capitalization rate of risk class is 12.5%. If Walter’s model is used : (i) What should be the optimum payout ratio of the firm ?(ii) What would be the price of the share at this payout ? (iii) How shall the price of the share be affected if a different payout
The earnings per share of a company are
Explain the Gordon’s Model of relevance of dividend.
How does Gordon’s Model differ from Walter’s Model to relevance of dividends ? What are their similarities?
The key argument of Walter’s Model is that a firm would have an optimum dividend policy. Comment and explain taking illustration.
“In a world of no taxes and no transaction costs, a firm cannot be made more valuable by manipulating the dividend payout ratio.” Examine the validity of the statement.
It is well documented that share prices tend to rise when firms announce an increase in their dividend payouts.How then can it be said that dividend policy is irrelevant?
Explain the arbitrage process used by the Modigliani-Miller hypothesis in support of the argument for irrelevance of dividend.
Explain the Modigliani-Miller hypothesis of dividend irrelevance.Does this hypothesis suffer from deficiencies ?
“The assumptions underlying the irrelevance hypothesis of Modigliani and Miller are unrealistic.” Explain.
“The contention that dividends have an impact on the share price has been characterized as the bird-in-hand argument.” Explain the essentials of this argument.
What are the assumptions which underline Gordon’s model of dividend effect ? Does dividend policy affect the value of the firm under Gordon’s model ?
What are the essentials of Walter’s dividend model ?Explain its shortcomings ?
How far do you agree with the proposition that dividends are irrelevant ?
How far do you agree with the proposition that dividends are relevant ?
Write short notes on :— Walter’s Approach to dividend policy.— Gordon’s Approach to relevance of dividend decision.
If ‘r’ = ‘ke’, than MP by Walter’s Model and Gordon’s Model for different payout ratios would be :(a) Unequal(b) Zero(c) Equal(d) Negative
Gordon’s Model of dividend relevance is same as :(a) No-growth Model of equity valuation(b) Constant growth Model of equity valuation(c) Price-Earning Ratio(d) Inverse of Price Earnings Ratio
In case of Gordon’s Model, the MP for zero payout is zero.It means that :(a) Shares are not traded(b) Shares available free of cost(c) Investors are not ready to offer any price(d) None of the above
Which of the following represents passive dividend policy ?(a) that dividend is paid as a % of EPS(b) that dividend is paid as a constant amount(c) that dividend is paid after retaining profits for reinvestment(d) all of the above
MM Model argues that dividend is irrelevant as(a) the value of the firm depends upon earning power(b) the investors buy shares for capital gain(c) dividend is payable after deciding the retained earnings(d) dividend is a small amount
If ke = r, then under Walter’s Model, which of the following is irrelevant?(a) Earnings per share(b) Dividend per share(c) DP Ratio(d) None of the above
MM Model of Dividend irrelevance uses arbitrage between:(a) Dividend and Bonus(b) Dividend and Capital Issue(c) Profit and Investment(d) None of the above
Which of the following stresses on investor’s preference for current dividend than higher future capital gains ?(a) Walter’s Model(b) Residuals Theory(c) Gordon’s Model(d) MM Model.
Which of the following is not true for MM Model?(a) Share price goes up if dividend is paid(b) Share price goes down if dividend is not paid(c) Market value is unaffected by Dividend policy(d) All of the above.
Dividend irrelevance argument of MM Model is based on :(a) Issue of Debentures(b) Issue of Bonus Share(c) Arbitrage(d) Hedging
Residuals Theory argues that dividend is a :(a) Relevant Decision(b) Active Decision(c) Passive Decision(d) Irrelevant Decision
‘Bird in hand’ argument is given by :(a) Walter’s Model(b) Gordon’s Model(c) MM Model(d) Residuals Theory
Walter’s Model suggests that a firm can always increase the value of the share by :(a) Increasing Dividend(b) Decreasing Dividend(c) Constant Dividend(d) None of the above
If a firm has ke < r, the Walter’s Model suggests for :(a) 0% Payout(b) 100% Payout(c) 50% Payout(d) 25% Payout
Walter’s Model suggests for 100% DP Ratio when :(a) ke = r(b) ke < r(c) ke > r(d) ke = 0
True or False. Rate of interest and time period, both are required to find out the present/future value.
True or False. “A bird in hand is worth two in the bush” correctly presents the concept of time value of money.
True or False. The number of cashflows in a perpetuity is known.
True or False.An annuity is an infinite series of cash flows.
True or False. Implicit rate of interest can be found with the help of compounding technique.
True or False.PVF(r,n) and PVAF(r,n) are same.
True or False.The discounting techniques help in finding out the future value of a present amount.
True or False. Present values and future values can be calculated only with the help of relevant mathematical tables.
True or False. The present value of a future amount remains same irrespective of the time of occurrence.
True or False. Cash flows occurring at different point of time are comparable in absolute terms.
True or False. Compounding and discounting techniques are same.
True or False. Time value of money is invariably considered in financial decision making.
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