Question
Mr Monopoly owrs 1,000 shares in Dryer Inc which operates as a charity, so does not pay any corporate tax. Mr Monopoly is expecting to
Mr Monopoly owrs 1,000 shares in Dryer Inc which operates as a charity, so does not pay any corporate tax. Mr Monopoly is expecting to recelve a dividend of $3.15 per share in one year's time. The company will also pay a liauidating dividend of $5700 at the end of Year2 a) What is the current share price for Drver inc. if the required rate of return of shareholders is 15%p.a.? b) If Mr Monopoly would rather have equal dividends in each of the next two years, what doe the size of the dividend need to be in each year? c) Using Miller and Modigliani irrelevance theorem, demonstrate the process that Mr Monopaly needs to undertake in Years 1 and 2 in order to create his desired dividend payouts in part (b).
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