Day: March 25, 2020

Who gave the theory of the Net Income Approach? David Durant gave the theory of Net Income. What is the crux of argument of the Net Income Approach ? According to this approach, the value of a company is affected by its capital structure and cost of capital. According to this approach, the increase in the proportion of debt capital Read More …

Capital structure Theories describe the relationship between capital structure, cost of capital and the value of the firm. CAPITAL STRUCTURE Capital structure is the mix of long-term sources and it includes equity capital, preference shares and long-term debt capital. The capital structure must be decided in a way that it protects the owner’s interest by assuming an optimal return continuously. Read More …

According to MM, under a perfect market condition, the dividend policy of the company is irrelevant and it does not affect the value of the firm. According to the theory, the value of a firm depends solely on its earnings power resulting from the investment policy. “Under conditions of a perfect market, rational investors, absence of tax discrimination between dividend Read More …

M.J. Gordon also holds that dividend is relevant to the value of the company and dividend policy certainly affects the value of the company i.e. marker price of shares. According to Gordon, the market value of share is equal to the present value of future stream of dividends. Assumptions of Gordon’s model Only retained earnings are used to finance investment Read More …