Fundamentals of Financial Management, Third Edition

SOLVED NUMERICAL PROBLEMS

1. Find the dividend pay-out ratio if EPS is Rs 10 and the amount of dividend is Rs 4.

   Solution

   DPR = 4/10 = 0.40 = 40%

    

2. A company has 10,000 shares of Rs 100 each. The capitalisation rate is 12%. Income before tax is Rs 1,50,000. Tax rate is 30%. Dividend pay-out ratio is 60%. The company has to take up a project costing Rs 4,00,000. Find MPS at the end of the current year and the number of shares to be issued for financing the new project if (a) dividend is paid, and (b) if dividend is not paid. Base the answer on M-M approach.

   Solution

   Net income = Rs 1,50,000(1 – 0.30) = Rs 1,05,000

   Dividend = Rs 1,05,000 × 0.6 = Rs 63,000

   Dividend per share = Rs 63,000/10,000 = Rs 6.30

   MPS₁ when dividend is paid= Rs 100 × 1.12 – ...