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Asbestos company belongs to a risk class of which the appropriate capitalization rate is 15...

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Accounting

Asbestos company belongs to a risk class of which the appropriate capitalization rate is 15 percent. It currently has 1,00,000 shares selling at Tk. 100 each. The firm is contemplating the declaration of a Tk. 8 dividend at the end of the current financial year, which has just begun. Answer the following questions based on M-M model :

I. What will be the price of the shares at the end of the year, if the dividend is not declared and if the dividend is declared?

II. Assuming that the firm pays dividend and has a net income of Tk. 20 lacs and makes new investment of Tk. 40 lacs during the period, how many new shares must be issued?

III. Calculate the value of the company if the dividend is declared & not declared and interpret the result.

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