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 = ₹12 P1 = Market price per share at the end of the year Ke = Cost of equity = 1/15 (as calculated in 3(b)(i)(a)) If dividend is declared (D1 = ₹12): ₹150 = (₹12 + P1) / (1 + 1/15) ₹150 = (₹12 + P1) / (16/15) ₹150 × (16/15) = ₹12 + P1 ₹160 = ₹12 + P1 P1 = ₹160 - ₹12 P1 = ₹148 Therefore, if dividend is declared, the price of the share at the end of the year will be ₹148 .