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.
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 – ...