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Walter's Model assumes the cost of capital (Ke) is:
AVariable with leverage
BSame as Kd
CEqual to inflation rate
DConstant
Answer & Solution
Correct answer: D. Constant
1. Walter's Model assumes Ke is constant.
2. Other assumptions: 100% retention OR 100% payout, perpetual earnings, internal financing only.
3. Concludes that dividend policy IS relevant.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §1 — Walter's Model_
Related questions
A 100% retention policy is most appropriate for:A firm has EPS ₹5, Walter's r = 15%, Ke = 12%, payout 40%. Per Walter, share price is:For Walter's formula P = (D + (E − D) × (r/Ke)) / Ke, if D = E (100% payout):Under Walter's Model, for a normal firm (r = Ke), dividend policy is:A "Growth firm" under Walter's Model is one where:According to Walter's Model, if r > Ke, the optimal dividend payout is: