1. If a firm declared 25% dividend on share of Face Value of ₹10, its growth rate is 5%, and if the rate of capitalization is 12%, its expected price would be ₹……………….. . (DEC 2019)
(a) 31.25
(b) 33.50
(c) 36.00
(d) 37.50
2. If the expected dividend is less than the actual dividend paid, the rational expectation approach suggests that the: (DEC 2019)
(a) Share price will increase.
(b) Share prices will go down.
(c) Value of the firm will go up.
(d) Both (a) and (c) above
3. Walter model can be applied only to those companies which: (DEC 2019)
(a) Earn high profits.
(b) Make investment by resorting to high level of debts.
(c) Make investments without borrowing or raising external equity.
(d) Do not make any investment.
4. Cash Management Model has been propounded by: (DEC 2019)
(a) Linter
(b) Walter
(c) Baumol
(d) Gordon
5. The earning per share of a company is ₹10. It has an internal rate of return of 15% and the capitalization rate of the same risk class is 12.5%. If Walter’smodel is used, what should be the price of a share at optimum payout? (DEC 2020)
(a) 92
(b) 94
(c) 96
(d) 98
6. From the following information find the market value per share as per Walter’s model: Earnings of the Company ₹5,00,000, Dividend Payout ratio 60%, No. ofshares outstanding 1,00,000, Equity capitalization rate is 12% and Rate ofreturn on investment is 15%. (DEC 2020)
(a) 45.83
(b) 48.53
(c) 49.27
(d) 47.19
7. Modigliani and Miller argue that the dividend decision ……………………. . (DEC 2020)
(a) Is irrelevant as the value of the firm is based on the earning power of its assets
(b) Is relevant as the value of the firm is not based just on the earning power of its assets
(c) Is irrelevant as dividends represent cash leaving the firm to shareholders, who own thefirm anyway
(d) Is relevant as cash outflow always influences other firm decisions
8. Determine the market price of a share of XYZ Ltd. as per Gordon’s Model, given equity capitalization rate = 11%, Expected Earning = ₹20, rate of return on investment = 10% and retention ratio = 30%. (DEC 2020)
(a) ₹165
(b) ₹175
(c) ₹185
(d) ₹195
9. A Company Ltd., has 50,000 shares outstanding. The current market price of the shares is ₹50 each. The company expects the net profit of ₹1 ,00,000 during the year and it belongs to a risk class for which the appropriate capitalization rate has been estimated to be 25%. The company is considering dividend of ₹10 per share for the current year. What will be the price of the share at the end of the year, if the dividend is not paid? (DEC 2020)
(a) ₹60.5
(b) ₹62.5
(c) ₹72.5
(d) ₹52.5
10. Which of the following statements is not true in the context of ‘M-M’s dividend theory? (DEC 2020)
(a) The firm operates in perfect capital markets
(b) All investors are rational
(c) There is no fixed investment policy of the firm
(d) The dividend policy of the firm is irrelevant
11.An investor is holding 100 shares of PQR Ltd. The current rate of dividend paid by the company is ₹10 per share. The long-term growth rate is expected to be 10% and the expected rate of return is 20%. Current market price of the shareis: (DEC 2020)
(a) ₹110
(b) ₹112
(c) ₹120
(d) ₹111
12.Which of the following statement is correct with respect to Gordon’s model? (AUG 2021)
(A) When IRR is greater than cost of capital, the price per share increases anddividend pay-out decreases
(B) When IRR is greater than cost of capital, the price per share decreases anddividend pay-out increases
(C) When IRR is equal to cost of capital, the price per share increases anddividend pay-outdecreases
(D) When IRR is lower than cost of capital, the price per share increases anddividend pay-out decreases
13. What are the different options other than cash used for distributing profits to shareholders? (AUG 2021)
(A) Bonus shares
(B) Stock split
(C) Stock dividend
(D) All of the above
14.According to the Walter’s model, a firm should have 100% dividend pay-out ratiowhen: (AUG 2021)
(A) 𝑟 = 𝑘𝑒
(B) 𝑟 < 𝑘𝑒
(C) 𝑟 > 𝑘𝑒
(D) 𝑔 > 𝑘𝑒
15. Modigliani and Miller, recognizing that dividends do somehow affect stock prices,suggest that positive effects of dividend increases are attributable: (AUG 2021)
(A) Directly to the dividend policy
(B) Directly to the optimal capital structure
(C) Not to the informational content but to the consistency in the payment of dividends
(D) Not to the dividend itself but to the informational content of the dividends with respect to future earnings
16. A Company has 5,000 shares of ₹100 each. The capitalisation rate is 12%. Income before tax is ₹2,00,000. Tax rate is 30%. Dividend pay-out ratio is 50%. Find Market Price Per Share (MPS) at the end of the current year based on MMapproach if dividend is paid. (AUG 2021)
(A) ₹101
(B) ₹100
(C) ₹99
(D) ₹98
17.PQR company earns ₹10 per share, is capitalised at a rate of 10 per cent and has a rate of return on investment of 20 percent. If dividend pay-out ratio is 50%, what should be the price per share, according to Walter’s model? (AUG 2021 )
(A) ₹200
(B) ₹150
(C) ₹125
(D) ₹225
18.When the firm does not pay out fixed dividend regularly, the divided policy is known as: (AUG 2021)
(A) Irregular
(B) Regular
(C) No immediate
(D) Liberal
19.Which one of the following is not an assumption of Walter’s model? (DEC 2021)
(A) The firm finance all investment through Debt or Retained earnings
(B) The firm’s internal rate of return is constant
(C) The firm’s cost of equity capital is constant
(D) The firm has a very long or infinite life.
20.When return on investment is equal to the market capitalization rate, the optimum payout ratio would be: (DEC 2021)
(A) Zero
(B) 100%
(C) 50%
(D) All the pay out ratios would be optimum
21.A company earns ₹5 per share. The capitalization rate is 10% and rate of return on investment is 18%. What would be the value of share at optimumpayout ratio? (DEC 2021)
(A) ₹70
(B) ₹80
(C) ₹90
(D) ₹100
22.A Ltd. has 20,000 shares of ₹100 each. The company is contemplating to declare a dividend of ₹5 per share at the end of the current year. The capitalization rate of the company is 10%. Calculate the value of share if dividend is not declared. (DEC 2021)
(A) ₹100
(B) ₹105
(C) ₹110
(D) ₹115
23.Determine the market price of a share of A Ltd. by using Gordon’s Model. Given 𝑘𝑒=12%, E = 20, r = 12%, b = 60% (DEC 2021)
(A) ₹166.67
(B) ₹210.52
(C) ₹189.19
(D) ₹181.82
24.If a company is using constant pay out ratio policy of dividend, the amount of dividend would: (DEC 2021)
(A) decrease with an increase in income
(B) increase with an increase in income
(C) remain same
(D) can’t be determined