3(a) A company belongs to a risk class for which the approximate capitalisation rate is 10 percent. It currently has outstanding 25,000 shares selling at Rs 100 each. The firm is contemplating the declaration of a dividend of Rs 5 per share at the end of the current financial year. It expects to have a net income of Rs 2,50,000 and has a proposal for making new investments of Rs 5,00,000. Show that under the MM assumptions, the payment of dividend does not affect the value of the firm. Calculate the Value of the Firm, When dividends are paid and unpaid.

3(a) A company belongs to a risk class for which the approximate capitalisation rate is 10 percent. It currently has outstanding 25,000 shares selling at Rs 100 each. The firm is contemplating the declaration of a dividend of Rs 5 per share at the end of the current financial year. It expects to have a net income of Rs 2,50,000 and has a proposal for making new investments of Rs 5,00,000. Show that under the MM assumptions, the payment of dividend does not affect the value of the firm. Calculate the Value of the Firm, When dividends are paid and unpaid.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 20P

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