100% de satisfacción garantizada Inmediatamente disponible después del pago Tanto en línea como en PDF No estas atado a nada
logo-home
Buscado previamente por ti
Buscado previamente por ti
logo
Exam help 7,80 €
Añadir al carrito
Navegar rápidamente a
Vista previa
  2.  
  3. University Of Bath (UoB)
  4.  
  5. University Of Bath
  6.  
  7. MN10311: Corporate Finance And Investment Appraisal

Examen

Exam help
 0 veces vendidas
  • Grado
  • MN10311: Corporate Finance And Investment Appraisal
  • Institución
  • University Of Bath (UoB)
  • Book
  • Corporate Finance, Global Edition

Exam answers for last exam, this is the layout and how the exam should be done. These questions are very likely to come up again in next year's exams, just with different numbers, but it follows an identical structure

Vista previa 1 fuera de 2  páginas

Información del documento

  • 25 de octubre de 2021
  • 2
  • 2021/2022
  • Examen
  • Preguntas y respuestas

Temas

  • corporate
  • finance
  • bath
  • university
  • exam

Libro relacionado

book image

Título del libro:

Autor(es):

  • Edición:
  • ISBN:
  • Edición:

Escuela, estudio y materia

  • University of Bath (UoB)
  • University of Bath
  • MN10311: Corporate Finance And Investment Appraisal
Todos documentos para esta materia (9)

Vendedor

avatar-seller
raulpatel10

Comentarios recibidos

Vista previa del contenido

Q.12

a. Explain why Modigliani and Miller argued that dividend policy should not affect the
valuation of a company’s shares. (500-word limit)

The Modigliani and Miller theory is suggesting the notion of Dividend Irrelevance. According to
the theorists, investors do not pay attention to the dividend history of a business, thus
factoring dividend value irrelevant when calculating the worth of a company. Overall
suggesting that the dividend policy of a company has no effect on the stock price of a business
nor its capital structure.

Modigliani and Miller state in their theory that if an investor receives a dividend which is
higher than expected, he/she can re-invest in the firm’s stock using the extra cash flow. If an
investor receives a dividend smaller than expected, he/she is more likely to sell part of the
shares to even out the loss, to recoup the same cash flow that would have been earned if the
dividend was as expected.

In general, investors are highly driven by bigger return rates, and are likely to generate that
return through reinvesting or selling a part of the shares to ensure that a cash balance or
surplus is obtained. If the market conditions are correct, it won’t matter if the return is earned
from dividends or from stock price appreciation.

An important aspect to consider when observing Modigliani and Miller’s theory, is the impact
of asset specific cash flows and risk. When a firm sets out to decide its capital budgeting and
asset value, dividend policy has no impact whatsoever.

For example, if a company with investment opportunities distributes its earnings between its
shareholders, it will have to raise capital required from outside, causing in an increase in the
number of shares, resulting in a fall in future earnings. Whatever a shareholder receives due to
an increased dividend will be neutralised completely because of the fall in value of shares,
since the expected earnings per share would decline.



b. Using the theories of signalling and clientele effects, explain why dividends may affect
company valuations. (500-word limit)



Dividend signalling is a notion which states how a company´s announcement of an increase in
dividend pay-out is regarded as an indicator for positive future earnings.

- Increasing a company´s dividend pay-out may predict favourable performance for the
company.
- The dividend signalling theory suggests that the businesses which pay the biggest
dividends, are more profitable than those paying smaller amounts.
- This concept indicates that the theory can be disrupted if a shareholder examines
extensively the current dividends as a forecast for future earnings.
- With signalling, there is asymmetry of information throughout the business, meaning
the managers and directors know more about the company and its prospects than the
investors do, this can result in problems if not managed properly, since the business

Los beneficios de comprar resúmenes en Stuvia estan en línea:

Garantiza la calidad de los comentarios

Garantiza la calidad de los comentarios

Compradores de Stuvia evaluaron más de 700.000 resúmenes. Así estas seguro que compras los mejores documentos!

Compra fácil y rápido

Compra fácil y rápido

Puedes pagar rápidamente y en una vez con iDeal, tarjeta de crédito o con tu crédito de Stuvia. Sin tener que hacerte miembro.

Enfócate en lo más importante

Enfócate en lo más importante

Tus compañeros escriben los resúmenes. Por eso tienes la seguridad que tienes un resumen actual y confiable. Así llegas a la conclusión rapidamente!

Preguntas frecuentes

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

100% de satisfacción garantizada: ¿Cómo funciona?

Nuestra garantía de satisfacción le asegura que siempre encontrará un documento de estudio a tu medida. Tu rellenas un formulario y nuestro equipo de atención al cliente se encarga del resto.

Who am I buying this summary from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller raulpatel10. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy this summary for 7,80 €. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

45,681 summaries were sold in the last 30 days

Founded in 2010, the go-to place to buy summaries for 15 years now

Empieza a vender
7,80 €
  • (0)
Añadir al carrito
Añadido