Q. What are assumptions of Walters dividend model?
1. Constant Return and Cost of Capital: - The Walter' model presume that the firm's rate of return and its cost of capital are constant.
2. Internal Financing: - All financing is complete through the retained earnings that is external sources of funds like debt or new equity capital aren't used.
3. 100% Payout or Retention: - Every earnings are either distributed as dividends or reinvested internally immediately.
4. Constant Earnings per share as well as Constant Dividends per share:-
There is no change in key namely, variables, beginning earnings per share and dividend per share.
5. Infinite Time: - The firm has a extremely long life.
Walter's Formula for formative the value of a share:-
D + r / Ke (E-D)
Where P = Market price per share
D = Dividend per share
E = Earnings per share
r = Internal Rate of Return
K = Cost of Equity Capital or Capitalisation Rate e