Do you think that dividends matter in the valuation of the f

Do you think that dividends matter in the valuation of the firm? What would be an argument that suggests they don’t matter? What would be some counter arguments that suggest that they do matter?

Solution

If dividend matters or not in the valuation of firm this is clarified via various models of dividend by various people. I personally think that dividend does matters in the valuation of the firm.

According to the Modigilani and Millars approach also known as the MM model of valuation, dividend does not play any role in valuation of the business. Either the company pays dividend or retain the earnings it doesnot effect the valuation of the business.

However, Growth model and Yield model of dividend are based on the principal that dividend effects the valuation of the business.