A closely- held plastic manufacturing company has been following a dividend policy which can maximize the market value of the firm as per Walter's model. Accordingly, each year at dividend time the capital budget is reviewed in conjunction with the earnings for the period and alternative investment opportunities for the shareholders. In the current year, the firm reports net earnings of Rs. 5,00,000. It is estimated that the firm can earn Rs. 1,00,000 if the amounts are retained. The investors have alternative investment opportunities that will yield them 10 per cent. The firm has 50,000 shares outstanding. What should be the D/P ratio of the company if it wishes to maximize the wealth of the shareholders?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
A closely- held plastic manufacturing company has been following a dividend policy which
can maximize the market value of the firm as per Walter's model. Accordingly, each year at
dividend time the capital budget is reviewed in conjunction with the earnings for the period
and alternative investment opportunities for the shareholders. In the current year, the firm
reports net earnings of Rs. 5,00,000. It is estimated that the firm can earn Rs. 1,00,000 if
the amounts are retained. The investors have alternative investment opportunities that will
yield them 10 per cent. The firm has 50,000 shares outstanding.
What should be the D/P ratio of the company if it wishes to maximize the wealth of the
shareholders?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
