Assuming that the company pays dividend, has net income of ₹7,50,000 and makes new investments of ₹15,00,000 during the period, how many new shares must be issued?

Under the Modigliani-Miller (MM) approach, if a company pays dividends and makes new investments, it must issue new shares to finance the investment not covered by retained earnings. 1. Total Funds Required for Investment: Investment (I) = ₹15,00,000 2. Funds Available from Net Income: Net Income (E) = ₹7,50,000 3. Total Dividends Paid: Number of outstanding shares (N) = 75,000 Dividend per share (D1) = ₹12 (from 3(b)(i)(b)) Total Dividends Paid = N × D1 = 75,000 × ₹12 = ₹9,00,000 4. Funds to be Raised from New Shares: Funds to be raised = Investment - (Net Income - Total Dividends Paid) Funds to be raised = I - (E - N × D1) Funds to be raised = ₹15,00,000 - (₹7,50,000 - ₹9,00,000) Funds to be raised = ₹15,00,000 - (-₹1,50,000) Funds to be raised = ₹15,00,000 + ₹1,50,000 = ₹16,50,000 Alternatively, Funds to be raised = Investment - Retained Earnings Retained Earnings = Net Income - Total Dividends Paid = ₹7,50,000 - ₹9,00,000 = -₹1,50,000 (This means dividends exceed net income, so the entire investment must be financed externally, plus the deficit from dividends). Funds to be raised = ₹15,00,000 - (-₹1,50,000) = ₹16,50,000 5. Number of New Shares to be Issued (n): Price of share at the end of the year (P1) = ₹148 (from 3(b)(i)(b)) Number of new shares (n) = Funds to be raised / P1 n = ₹16,50,000 / ₹148 n = 11,148.65 shares Since shares cannot be fractional, approximately 11,149 new shares must be issued.