Miller and Modigliani - Essay Example

Only on StudentShare

Extract of sample
Miller and Modigliani

The higher the company is able to retain earnings, the lesser the dividends and the lower the retention, the larger the dividends. Finance managers then need to make a wise decision on dividends payments and investment fuelling funds from the net profit of the firm. Since the overall goal of doing business is profit maximization, organizations must know which of the two practices is better in terms of wealth creation. If it will not lead to wealth creation for the shareholders, the funds should be retained to support investment programmes. A conflict therefore arises on whether dividends payment impacts the value of the organization or not. Some critics argue that dividends are irrelevant in that the percentage paid to the shareholders does not impact the value of the business while others maintain that dividends are relevant as far as the value of the organization is concerned (Baker,2009). Modigliani and Miller Hypothesis (MM Hypothesis) Both are on the idea that dividends are irrelevant in that they have no effect on the organization’s value and do not have serious repercussions on the firm. According to them, choosing an investment programme that will contribute to the firm’s profit is what is important in adding value to the business. ...Show more

Summary

Dividends refer to the share of an organization’s net profit that is given to its shareholders. An organization’s normal shareholders usually benefit from a given rate of dividend that is generated from the profits. …
Author : ethelkemmer
Miller and Modigliani essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Miller and Modigliani"
with a personal 20% discount.
Grab the best paper

Related Essays

Research and critical evaluation on the M&M (Modigliani and Miller) models and the production of a report
The paper focuses on both the proposition of the MM hypothesis and interprets which method will be beneficial for the organization. The paper also includes subjects of other modes of financing the organization and the relation between the capital structure and MM hypothesis.
12 pages (3000 words) Essay
Nobel prize winner Franco Modigliani
Franco Modigliani received the Sveriges Riksbank Prize in Economic Sciences along with his colleagues at Sweden. Modigliani was born in Rome on 18 June 1918, where he received his schooling and further education in law. Though his father was a pediatrician, Modigliani chose not to enter the field of medicine due to his fear or suffering and blood.
5 pages (1250 words) Essay
Carry out your own research to find a non-financial firm that changed its dividend policy over the last few years. Assess the (p
This means that the primary role of such a policy is to determine the proportion of the company’s funds, which should be paid to the shareholders and what should be set aside for investment in new opportunities. In order to determine this policy, managers of firms must consider the options that would lead to optimisation of the shareholders’ wealth.
14 pages (3500 words) Essay
Anlysis of The Dechra PLC
The company has good presence in the market judging by its financial reports of the years. According to the 2012 financial reports, the revenue that the company registered is ?426.0 million. On the other hand, the operating income and the net income registered over the same period are ?
5 pages (1250 words) Essay
Corporate Finance Master Essay
However, it is not the only factor. The most important aspect, perhaps, is the close complexity of relations and interdependence between payout policy and major part of the financial and investment decisions the companies make: Management and the board of directors must decide the level of dividends, what repurchases to make (and the mirror image decision of equity issuance), the amount of financial slack the firm carries (which may be a nontrivial amount; for example, at the end of 1999, Microsoft held over $17b in financial slack), investment in real assets, mergers and acquisitions, and debt issuance.
5 pages (1250 words) Essay
Dividend Policy in Publicly Traded Companies
Whether to pay dividends or not and if yes by how much is determined by the dividend policy of the firm. Dividend Policy of a firm depends on several factors like Firms Financial needs, its future growth plans and earnings and investment opportunities, investors need for income or dividends, firms fund raising capacity and control of authority as well as government decision on incomes from dividends and capital gains.
3 pages (750 words) Essay
Why companies pay dividend
o be taxable income to the shareholders.(Frenczy 2008, 8-21) These also underscore that since the firm that issued the dividends did not receive offsetting deduction, tax is paid both at corporate and individual levels as a consequence. Dividends are often compared with capital
6 pages (1500 words) Essay
M Sc Dissertation Proposal ( Dividend policy)
The dividend policy which a company adopts is established on the above two options. As soon as a decision is taken a stable dividend policy can be adopted by the company. These dividend policies determine the outlook of the investors as
4 pages (1000 words) Essay
Working Capital Management
After passing through the situation of demand crisis in the automobile markets, the company has been effective managing its free cash
1 pages (250 words) Essay
Corporate finance
Instead of this, the market worth of the company depends on its operating profits. Company’s capital structure is the means by which a company funds its assets. It can finance or fund its operations either
8 pages (2000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT