ABC Ltd. has earnings of 50,00,000 and 10,00,000 equity shares. The company is considering two dividend policies: Policy A: Pay 100% dividendPolicy…

CA Intermediate · Financial Management and Strategic Management · MTP · January 2026
ABC Ltd. has earnings of 50,00,000 and 10,00,000 equity shares. The company is considering two dividend policies: Policy A: Pay 100% dividendPolicy B: Retain all earnings According to MM Proposition I (no taxes), the market value of the firm under both policies will be:
(A) ₹ 1,00,00,000 for Policy A; ₹ 1,20,00,000 for Policy B
(B) ₹ 1,00,00,000 for both policies
(C) ₹ 1,10,00,000 for Policy A; ₹ 1,00,00,000 for Policy B
(D) ₹ 90,00,000 for Policy A; ₹ 1,10,00,000 for Policy B

Suggested Answer and Working Notes:

Correct Answer: Option (B)

₹ 1,00,00,000 for both policies

Topics: Part-A: Financial Management

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