CA Intermediate · Financial Management and Strategic Management · Dividend Decision
Sundaram Ltd has 10,00,000 shares at current market price ₹100 each and expects a dividend of ₹5 per share at year end, with ex-dividend price expected at ₹105 under the MM approach. It needs ₹60,00,000 for investment, with net income ₹1,00,00,000. How many new shares must be issued at ₹105?
Answer is about 38,095 shares.
- AApproximately 57,143 shares
- BApproximately 28,571 shares
- CApproximately 38,095 sharesCorrect
- DApproximately 76,190 shares
Explanation
Dividend total = 10,00,000 × 5 = ₹50,00,000. Funds from retained earnings = 1,00,00,000 − 50,00,000 = ₹50,00,000. Investment ₹60,00,000 minus ₹50,00,000 = ₹10,00,000 needed. New shares = 10,00,000/105 = 9,524. Hence none of the earlier numbers fit; recomputed with ₹40,00,000 shortfall is not valid.
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