Question
Hache Co Ltd currently has 40,000 outstanding shares selling at a market price of Rs 200 per share. The firm has no borrowing. It has
Hache Co Ltd currently has 40,000 outstanding shares selling at a market price of Rs 200 per share. The firm has no borrowing. It has internal funds available to make capital expenditure (capex) of Rs 1,200,000 which will yield a positive Net Present Value of Rs 400,000. The firm also wants to pay a dividend per share of Rs 30. Given the firms capex plan and its policy of zero borrowing, the firm will have to issue new shares to finance payment of dividends to its shareholders. How will the firms value be affected: (i) If it does not pay any dividend? (ii) If it pays dividend per share Rs 30?
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