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Question:
Agro-chemicals company belongs to a risk class for which the appropriate capitalization rate is 10%. It currently has 1,000,000 shares selling at Ksh. 100 each.
The firm is contemplating the declaration of Ksh. 5 dividend at the end of the current financial year which has just began.
What will be the price of the share at the end of the year, if a dividend is not declared?
What will it be if dividend is declared?. Answer these questions on the basis of Modigliani and Miller model and assume no taxes
Verified Expert
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