Question

TXL Ltd. has 80,000 shares outstanding. The current market price of these shares is Tshs.15 each....

TXL Ltd. has 80,000 shares outstanding. The current market price of these shares is Tshs.15 each. The company expect a net profit of Tshs.240,000 during the year and it belongs to a risk-class for which the appropriate capitalisation rate has been estimated to be 20%. The Company is considering dividend of Tshs.2 per share for the current
year.
a) What will be the price of the share at the end of the year (i) if the dividend is paid and (ii) if the dividend is not paid?
b) How many new shares must the Co. issue if the dividend is paid and the Co. needs Tshs.5,60,000 for an approved investment expenditure during the year? Use MM model for the calculation

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