Policy 1 2 annual dividend current price per share is

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Policy 1: $2 annual dividend; current price per share is $10, Illustration of M&M Dividend Policy Irrelevancy but the price will fall to $8 after the cash dividend is paid. Policy 2 : No cash dividend; current price per share is and will remain at $10. Solution: Action under Policy 1 : You receive $20,000 cash dividend ($2 x 10,000) and keep your 10,000 shares at $8 a share for a total wealth of $20 000 cash + $80 000 in shares or 8 for a total wealth of $20,000 cash + $80,000 in shares, or $100,000. Action under Policy 2 : You sell 2,000 shares of York stock to get your $20,000. You are left with 8,000 shares at $10 a share. Your wealth is $20,000 cash + $80,000 in shares, or $100,000.
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