Question 11 and 12

11. The equity share of Vishakha Ltd currently sells at Rs.90. The expected EPS is Rs.18. The company follows a pay-out ratio of 60%. The rate of return is 20%. What is the cost of equity? Will the market price change if the company announces 100% pay-out ratio? 12. A company belongs to a risk class of which appropriate capitalization rate is 10 per cent. It currently has 1, 00,000 shares selling at Rs.100 each. The firm is contemplating the declaration of a dividend of Rs.6 per share at the end of current. Fiscal year, which has just begun. Answer the following questions on the basis of MM model. What will be the price of the shares at the end of the year if a dividend is not declared? What will it be if it is declared? Assuming that the firm pay dividend, has net income of Rs.10, 00,000 and makes new investment of Rs.20, 00,000 how many new shares must be issued. Use M-M model