Q.4 ABC Ltd. Has a capital of Rs. 25,000 in equity shares of Rs. 100 each. The company proposes to declare a dividend of Rs.5 per share at the end of the current financial year. The capitalization rate is 10%, the company is estimating an EBIT of Rs. 2.5 lakhs a) A proposal for making new investments of Rs. 5 lakhs. Show that under the MM assumptions, the payment of dividend does not affect the value of the firm b) If the rate of return of the firm is 8% , then what will be the market price of Equity according to Walters Model. What should be the optimum payout ratio and how will it change the price of equity? c) If the rate of return of the investment of the firm is 9%, then what will be the price of the equity according to Gordon Model?