● M Ltd. belongs to a risk class for which the appropriate price-earnings ratio is 10. It currently has 25,000 equity shares selling at `10 each. The company is contemplating the declaration of

`0.80 dividend per share at the end of the current financial year which has just started. Given the assumption of Modigliani and Miller, answer the following:

1. What will be the price of the share at the end of the year

(a) if dividend is not declared;

(b) if dividend is declared?

2. Assume that the firm paying the dividend has net profit of `50,000 and makes investment of

`1,00,000 during the period, how many new shares must be issued?

3. If the firm decides not to pay any dividend, how many new shares will it require to issue?

4. What will be the value of the firm

(a) if dividend is not declared;

(b) if dividend is declared?