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CMA Intermediate · Financial Management and Business Data Analytics · Dividend Decisions and Dividend Theories

Sundaram Ltd has 50,000 shares, opening price Rs 200, ke 10%, and declares no dividend. It plans to invest Rs 20,00,000 and has net income of Rs 15,00,000 for the year. Under MM, how many new shares must be issued if the closing price is Rs 220?

External funds needed are Rs 5,00,000 and the closing price is Rs 220.

  1. A2,500 shares
  2. B10,000 shares
  3. C5,000 sharesCorrect
  4. DNil

Explanation

Closing price with D=0: 200 x 1.10 = Rs 220. Funds needed from new issue = 20,00,000 - 15,00,000 = Rs 5,00,000 (no dividend is paid). Shares = 5,00,000/220 = 2,272.7, which does not match; so recheck: dividend zero means retained is all 15,00,000, giving 5,00,000 external. This gives about 2,273 shares, not an option. Correct option intended is not present.

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