Zigzag Ltd. belongs to a risk-class for which the appropriate PE ratio is 15. It currently has 75,000 outstanding shares selling at ₹150 each. The company is contemplating declaration of dividend @ ₹12 per share at the e

Under the Modigliani-Miller (MM) approach, the value of a firm is independent of its dividend policy, assuming perfect capital markets. The price of a share at the end of the year (P1) can be calculated using the formula: P0 = (D1 + P1) / (1 + Ke) Where: P0 = Current market price per share = ₹150 D1 = Dividend per share at the end of the year P1 = Market price per share at the end of the year Ke = Cost of equity First, calculate the Cost of Equity (Ke): Given P/E Ratio = 15 Ke = 1 / P/E Ratio = 1 / 15 If dividend is not declared (D1 = ₹0): P0 = (0 + P1) / (1 + Ke) ₹150 = P1 / (1 + 1/15) ₹150 = P1 / (16/15) P1 = ₹150 × (16/15) P1 = ₹10 × 16 P1 = ₹160 Therefore, if dividend is not declared, the price of the share at the end of the year will be ₹160 .