12. RST Ltd. has a capital of `10,00,000 in equity shares of `100 each. The shares are currently quoted at par. The company proposes declaration of dividend of `10 per share. The capitalisation rate for the risk class to which the company belongs is 12%. What will be the market price of shares at the end of the year, if (i) no dividend is declared; and

(ii) 10% dividend is declared?

Assuming that the company pays the dividend and has a net profits of `5,00,000 and makes new investments of `10,00,000 during the period, how many new shares must be issued? Use M-M Model. [C.S. Final Dec. 1999]

[Ans.

(a) (i) `112, (ii) `102,

(b) 5882 shares]