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Assuming that the Stock Exchange is frictionless and price efficient, what will be the total value of the business's ordinary shares, if the business immediately pays a dividend of £0.10 per share and raises the finance for the project from an issue of equity capital? A £20.00 million (B) £16.25 million с £22.00 million D £22.50 million

Assuming that the Stock Exchange is frictionless and price efficient, what will be the total value of the business's ordinary shares, if the business immediately pays a dividend of £0.10 per share and raises the finance for the project from an issue of equity capital? A £20.00 million (B) £16.25 million с £22.00 million D £22.50 million

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A business has 10 million ordinary shares that are currently quoted at £2.20 each. The business has £1 million of cash available that it could use to fund a dividend. There is a project that will require an immediate cash outlay of £1 million and has a net present value of £0.5 million. Assuming that the Stock Exchange is frictionless and price efficient, what will be the total value of the business's ordinary shares, if the business immediately pays a dividend of £0.10 per share and raises the finance for the project from an issue of equity capital? A £20.00 million (B) £16.25 million C £22.00 million D £22.50 million
Transcribed Image Text:A business has 10 million ordinary shares that are currently quoted at £2.20 each. The business has £1 million of cash available that it could use to fund a dividend. There is a project that will require an immediate cash outlay of £1 million and has a net present value of £0.5 million. Assuming that the Stock Exchange is frictionless and price efficient, what will be the total value of the business's ordinary shares, if the business immediately pays a dividend of £0.10 per share and raises the finance for the project from an issue of equity capital? A £20.00 million (B) £16.25 million C £22.00 million D £22.50 million
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