Multiple choice

According to Walter, firm should pay 100% dividend if

  1. r > k

  2. r = k

  3. r < k

  4. none of the above

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Walter's dividend model states that when a firm's return on investment (r) equals its cost of capital (k), shareholders are indifferent between receiving dividends now or having the firm reinvest earnings. In this equilibrium condition, paying 100% dividends maximizes shareholder wealth.