Definition: The Cobb-Douglas Production Function, given by Charles W. Cobb and Paul H. Douglas is a linear homogeneous production function, which implies, that the factors of production can be substituted for one another up to a certain extent only. With the proportionate increase in the input factors, the output also increases in the same proportion. Thus, there are … [Read more...] about Cobb-Douglas Production Function

## Linear Homogeneous Production Function

Definition: The Linear Homogeneous Production Function implies that with the proportionate change in all the factors of production, the output also increases in the same proportion. Such as, if the input factors are doubled the output also gets doubled. This is also known as constant returns to a scale. The production function is said to be homogeneous when the elasticity of … [Read more...] about Linear Homogeneous Production Function

## Variable Proportion Production Function

Definition: The Variable Proportion Production Function implies that the ratio in which the factors of production such as labor and capital are used is not fixed, and it is variable. Also, the different combinations of factors can be used to produce the given quantity, thus, one factor can be substituted for the other. In the case of variable proportion production function, … [Read more...] about Variable Proportion Production Function

## Fixed Proportion Production Function

Definition: The Fixed Proportion Production Function, also known as a Leontief Production Function implies that fixed factors of production such as land, labor, raw materials are used to produce a fixed quantity of an output and these production factors cannot be substituted for the other factors. In other words, fixed quantity of inputs is used to produce the fixed quantity … [Read more...] about Fixed Proportion Production Function

## Production Function

Definition: The Production Function shows the relationship between the quantity of output and the different quantities of inputs used in the production process. In other words, it means, the total output produced from the chosen quantity of various inputs. Generally, production is the transformation of raw material into the finished goods. These raw materials are classified … [Read more...] about Production Function

## Stock Split

Definition: A Stock Split is a method of increasing the number of outstanding shares with a proportionate reduction in its face value. With a split only the price per share reduces, the market capitalization i.e. market value of the outstanding shares and the proportionate ownership interest of the existing shareholders do not change. The stock split is generally done when … [Read more...] about Stock Split

## Types of Dividend

Definition: The Dividends are the proportion of revenues paid to the shareholders. The amount to be distributed among the shareholders depends on the earnings of the firm and is decided by the board of directors. Types of Dividend Cash Dividend: It is one of the most common types of dividend paid in cash. The shareholders announce the amount to be disbursed among the … [Read more...] about Types of Dividend

## Gordon’s Model

Definition: The Gordon's Model, given by Myron Gordon, also supports the doctrine that dividends are relevant to the share prices of a firm. Here the Dividend Capitalization Model is used to study the effects of dividend policy on a stock price of the firm. Gordon's Model assumes that the investors are risk averse i.e. not willing to take risks and prefers certain returns to … [Read more...] about Gordon’s Model

## Walter’s Model

Definition: According to the Walter's Model, given by prof. James E. Walter, the dividends are relevant and have a bearing on the firm’s share prices. Also, the investment policy cannot be separated from the dividend policy since both are interlinked. Walter's Model shows the clear relationship between the return on investments or internal rate of return (r) and the cost of … [Read more...] about Walter’s Model

## Proof of Miller and Modigliani Hypothesis

Definition: Miller and Modigliani Hypothesis or MM Approach supports the “dividend irrelevance theory”, stating that the dividends are irrelevant and has no effect on the firm’s share value. Also, it is believed that it is the investment policy that increases the value of the shares and hence should be given more importance than the payouts to the shareholders. To justify … [Read more...] about Proof of Miller and Modigliani Hypothesis