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FM Practical Dividend Decision

Notes

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52 views2 pages

FM Practical Dividend Decision

Notes

Uploaded by

manreetsaluja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Q1.

EPS ₹ 10
P-E
Ratio 10
Ke 10%
No. of Outstanding shares 20,000
Expected
Dividend ₹ 5
Expected Net Income ₹ 2,00,000
New Investment ₹ 4,00,000
As per MM Approach, show that the payment of dividend does not affect the value of the firm. Use
the above data to prove the statement.

Q2.

P/E Ratio 10
No. of Outstanding
shares 50,000
Price per share ₹ 100.00
Expected Net Income ₹ 5,00,000.00
New ₹
New Investment ₹ 10,00,000.00 Investment 10,00,000.00
Dividend intended to be paid ₹ 8.00

i) Price of the share at the end of the year if


a) dividend is not declared
b) dividend is declared
ii) Amount to be raised through issue of new equity shares when dividend is paid.
iii) Amount to be raised through issue of new equity shares when dividend is not paid.

Q3. Following are the details regarding 3 companies

A Ltd B Ltd C Ltd


IRR (r) 15% 10% 8%
Cost of Capital (Ke) 10% 10% 10%
Earning Per share ₹ 10.00 ₹ 10.00 ₹ 10.00
Using Walter model, calculate the effect of dividend payment on the value of share of the above
companies under:

i) When no dividend is paid


ii) When dividend is paid @8Rs per share
ii) When dividend is paid @10Rs per share
Q4.

The following information for the current year about XYZ Ltd. is available to you :

Earnings of the Firm ₹ 18,00,000.00


No. of Equity Share (N) ₹ 3,00,000.00
Amount of Dividend Paid ₹ 9,00,000.00
ROI 22.50%
Cost of Equity 15%

i) Price of share and value of firm using Walter model


ii) Value of firm at optimal Payout ratio
iii) Payout ratio at which firm value will be lowest. And the value of firm at this payout ratio.
iv) Payout ratio if firm's share price is 55

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