Refer to the first balance sheet prepared for Rational Demiconductor in Section 16.4. Again it uses cash

Question:

Refer to the first balance sheet prepared for Rational Demiconductor in Section 16.4. Again it uses cash to pay a $1,000 cash dividend, planning to issue stock to recover the cash required for investment. But this time catastrophe hits before the stock can be issued. A new pollution control regulation increases manufacturing costs to the extent that the value of Rational Demiconductor’s existing business is cut in half, to $4,500. The NPV of the new investment opportunity is unaffected, however. Show that dividend policy is still irrelevant.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...