A company has a capitalization rate of 10%. It currently has outstanding shares worth 25000 shares selling currently at Rs. 100 each. The firm expects to have a net income of Rs. 400000 for the current financial year and it is contemplating to pay a dividend of Rs. 4 per share. The company also requires Rs. 600000 to fund its investment requirement. Show that under MM model, the dividend payment does not affect the value of the firm.

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MM model MM Irrelevance Theory Modigliani and Merton H Mil... View the full answer