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Policy 1: $2 annual dividend; current price per share is $10,Illustration of M&M Dividend Policy Irrelevancybut the price will fall to $8 after the cash dividend is paid.Policy 2: No cash dividend; current price per share is andwill 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 sharefor a total wealth of $20 000 cash + $80 000 in shares or8for 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 stockto get your $20,000. You are left with 8,000 shares at $10a share. Your wealth is $20,000 cash + $80,000 in shares,or $100,000.
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