1.

Share price after announcement

2. D/E Ratio
3. Cost of Equity
4. Tax adj WaCC
5. CF(firm)
6. How many
7. Expected DPS
8. Derive value at t=1 based on 7
9. Cum-div price at t=1 based on 8
10.Value at t=0 based on 9
1)Questions 1-2 are based on the following data. Corporate tax-rate is 30%. Curr
ent price of XYZ s share is Rs.12; it is now unlevered. It plans to issue Rs.30 cr
ore in debt and use the proceeds to buy-back 2/3 of its outstanding shares.
What would be XYZ s share-price after it makes the announcement regarding its plan
?
2)Questions 1-2 are based on the following data. Corporate tax-rate is 30%. Curr
ent price of XYZ s share is Rs.12; it is now unlevered. It plans to issue Rs.30 cr
ore in debt and use the proceeds to buy-back 2/3 of its outstanding shares.
What would be the debt/equity fraction after the buy-back? (in %, two places af
ter decimal; e.g. write 0.57 or 57% as 57 while 2.50 as 250)
3)Questions 3-5 are based on the just preceding data plus the following informat
ion. The firm s shares have been paying a constant dividend of Rs.2.10 per year fo
r a long time. The new debt would be issued @10.0%.
What would happen to the cost-of-equity after the buy-back?
0
I do not want to answer this Question
1
28.00
2
28.20
3
28.40
4
28.90
5
None of the others
4)Questions 3-5 are based on the just preceding data plus the following informat
ion. The firm s shares have been paying a constant dividend of Rs.2.10 per year fo
r a long time. The new debt would be issued @10.0%.
What would be cash flow to the firm after the buy-back?
5)Questions 3-5 are based on the just preceding data plus the following informat
ion. The firm s shares have been paying a constant dividend of Rs.2.10 per year fo
r a long time. The new debt would be issued @10.0%.
What would be the firm s tax-adjusted WACC after the buy-back?
6)Questions 6-10 are based on the following data. A firm has 4 crore shares outs
tanding, with a total market-value (market capitalization) of Rs.64 crores. The
firm was expected to pay a total of Rs.8 crore in dividends at the end of the ye
ar (t=1), growing at a rate of 12.50% per year. The company has just heard that
the share-price depends on dividends and, therefore, announces that it would mo
re than double the dividend-per-share at the end of the year and pay 2 times the
amount originally expected. To finance the additional dividends, the company pl
anned to issue new shares, simultaneously with dividend-payment at t=1. These ne
w shares would themselves receive dividends only from the end of their first yea
r (t=2).

How many crores new shares are expected to be issued?

7)Questions 6-10 are based on the following data. A firm has 4 crore shares outs
tanding, with a total market-value (market capitalization) of Rs.64 crores. The
firm was expected to pay a total of Rs.8 crore in dividends at the end of the ye
ar (t=1), growing at a rate of 12.50% per year. The company has just heard that
the share-price depends on dividends and, therefore, announces that it would mor
e than double the dividend-per-share at the end of the year and pay 2 times the
amount originally expected. To finance the additional dividends, the company pla
nned to issue new shares, simultaneously with dividend-payment at t=1. These new
shares would themselves receive dividends only from the end of their first year
(t=2).
What would then become the expected DPS (dividend per share) at t=2 after the ne
w issue?

8)Questions 6-10 are based on the following data. A firm has 4 crore shares outs
tanding, with a total market-value (market capitalization) of Rs.64 crores. The
firm was expected to pay a total of Rs.8 crore in dividends at the end of the ye
ar (t=1), growing at a rate of 12.50% per year. The company has just heard that
the share-price depends on dividends and, therefore, announces that it would mor
e than double the dividend-per-share at the end of the year and pay 2 times the
amount originally expected. To finance the additional dividends, the company pla
nned to issue new shares, simultaneously with dividend-payment at t=1. These new
shares would themselves receive dividends only from the end of their first year
(t=2).
Derive
is it?
0
1
2
3
4
5

the value at t=1 of the above dividend stream starting at t=2. How much
I do not want to answer this Question
16.00
20.00
24.00
25.00
None of the others

9)Questions 6-10 are based on the following data. A firm has 4 crore shares outs
tanding, with a total market-value (market capitalization) of Rs.64 crores. The
firm was expected to pay a total of Rs.8 crore in dividends at the end of the ye
ar (t=1), growing at a rate of 12.50% per year. The company has just heard that
the share-price depends on dividends and, therefore, announces that it would mor
e than double the dividend-per-share at the end of the year and pay 2 times the
amount originally expected. To finance the additional dividends, the company pla
nned to issue new shares, simultaneously with dividend-payment at t=1. These new
shares would themselves receive dividends only from the end of their first year
(t=2).
Using the answer to the above question, derive the cum-dividend-price of each ol
d share at t=1 under the new dividend policy. How much is it

10)Questions 6-10 are based on the following data. A firm has 4 crore shares out

standing, with a total market-value (market capitalization) of Rs.64 crores. The

firm was expected to pay a total of Rs.8 crore in dividends at the end of the y
ear (t=1), growing at a rate of 12.50% per year. The company has just heard that
the share-price depends on dividends and, therefore, announces that it would mo
re than double the dividend-per-share at the end of the year and pay 2 times the
amount originally expected. To finance the additional dividends, the company pl
anned to issue new shares, simultaneously with dividend-payment at t=1. These ne
w shares would themselves receive dividends only from the end of their first yea
r (t=2).
Using the cum-dividend-price in the question above, derive the present-value (at
t=0) of each old share. How much is it?