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  ANSWERS   PART – A: 10 × 2 = 20 Marks | Answer All Questions 1. Clarify the concept of Wealth Maximisation. Wealth maximisation refers to maximising the market value of shareholders' investment in a company. It aims to increase the share price and shareholders' wealth by making sound financial decisions. 2. Give your arguments in favour of profit maximisation . The arguments in favour of profit maximisation are: It ensures the survival and growth of the business. It helps in measuring the efficiency of management. It increases the earning capacity of the organisation. It helps in maximising the returns to shareholders. 3 . Mention the forms of capital structure. The major forms of capital structure are: Equity Share Capital. Preference Share Capital. Debentures or Debt Capital. Retained Earnings. 4. Define Arbitrage Process. Arbitrage is the process of purchasing and selling the same or equivalent securities in different markets to earn ...
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Gordon's Model and MM Model of Dividend Policy

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Gordon’s model and MM model Gordon's Model and MM Model of Dividend Policy 1. Gordon's Model Myron Gordon's Model is a dividend relevance theory . It states that the dividend policy of a company affects the market value of its shares . The model is based on the idea that investors generally prefer certain current dividends rather than uncertain future capital gains. This is often referred to as the "bird-in-the-hand" argument . Gordon's Formula                         Where: P₀ = Current market price per share E = Earnings per share b = Retention ratio r = Rate of return on investment Ke = Cost of equity capital Dividend payout ratio = 1 − b Main Principle The relationship between r and Ke determines the appropriate retention/dividend approach: Situation Implication r > Ke ...
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Types of Dividend

  Types of Dividend        A dividend is the portion of a company's profit distributed to its shareholders. The major types are: Cash Dividend – Dividend paid to shareholders in cash. Interim Dividend – Dividend declared and paid during the financial year before the annual accounts are finally approved. Final Dividend – Dividend recommended after the end of the financial year and declared at the company's Annual General Meeting (AGM), subject to applicable law. Stock Dividend / Bonus Shares – Distribution to shareholders in the form of additional shares instead of cash. Special Dividend – A non-recurring dividend paid in addition to the company's regular dividend. Property Dividend – Dividend distributed in the form of assets or property rather than cash. Interim Dividend vs Final Dividend Basis Interim Dividend Final Dividend Mean...
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