CORPORATE FINANCE MINICASE Essay Example | Topics and Well Written Essays - 1000 words

incarnate FINANCE MINICASE - Essay ExampleExplain what these terms mean, and briefly describe each hypothesis.Dividend irrelevance surmise refers to a possible action where there is a difference between the dividends, capital gains and making of dividend policy inapplicable and which do not have an effect on the value of the firm. This surmisal was developed and proposed by MM however there have been a number of assumptions that have been made to prove that it is zero. In the theory MM had argues that paying out a sawhorse on a share would lead to drop-off of the growth of loot, dividends as the stock require to be sold to be able to make up for the capital paid in terms of dividends.The bird in - the egest refers a theory where the dollar of dividends in hand is a preferred solution rather than a dollar that is retained in the business. In these cases as well the dividend policy has not effect on the firms value. This theory on the other hand was identified and recognise d by Myron Gordon and Jon Lintner. The major argument was that the investors note a dollar of dividend to be much less riskier when in hand rather than in the retained earnings of a company. In this case the investors provide regard the firm with a high payout ratio than beingness a less risky with a low payout ratio. The two theories oppose one another as the MM stated that the Gordon Lintner spoke of the firms risk to be dependent on the endangerment of its cash flows from the assets and the capital structure. However it is not how its earnings are distributed among the investors.It is essential to understand that if the dividend irrelevance theory is accurate, then it would mean that there are no consequences of the dividend payout theory. In case the bird in the hand theory is correct, then the firms would have a high payout if it maximised its stock prices. If the tax preference theory is accurate, it will be noted that the firm