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4 Assume perfect capital market. An all equity firm has Rs.6,000 in cash and assets worth Rs 28,000. The firm has 1200 shares outstanding and no...


Ques. 4 Assume perfect capital market. An all equity firm has Rs.6,000 in cash and assets worth
Rs 28,000. The firm has 1200 shares outstanding and no investment opportunities.
a. If the firm pays no dividend today, what is the stock price and the wealth of stockholders?
b. If the firm pays a dividend of Rs.6000 today.
i. What is the stock price before dividend?
ii. What is the stock price after dividend?
iii. What is the wealth of stockholders after the dividend?
c. If the firm pays a dividend of Rs.9000 today.
i. What is the stock price before dividend?
ii. What is the stock price after dividend?
iii. How many new shares must be issued?
iv. How does the dividend affect stockholder wealth?

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