Question: We stated in Section 17.3 that MM's proof of dividend irrelevance assumes that any new shares are sold at a fair price. Consider the case

We stated in Section 17.3 that MM's proof of dividend irrelevance assumes that any new shares are sold at a fair price. Consider the case in Problem 16 in which Hewlard Pocket pays the higher dividend of $2 a share and replaces the cash by issuing new stock. Suppose that the new shares are sold in a public issue at $8 a share, which is below the market price after the $2 dividend is paid. What is the loss suffered by the existing shareholders? Is dividend policy still irrelevant? Why or why not?

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