question archive Last month, TMB Power Company, which had been having trouble with cost overruns on a nuclear power plant that it had been building, announced that it was “temporarily suspending payments of dividends to the shareholder due to the cash flow crunch associated with its investment program
Last month, TMB Power Company, which had been having trouble with cost overruns on a nuclear power plant that it had been building, announced that it was “temporarily suspending payments of dividends to the shareholder due to the cash flow crunch associated with its investment program
Subject:FinancePrice:2.86 Bought3
Last month, TMB Power Company, which had been having trouble with cost overruns on a nuclear power plant that it had been building, announced that it was “temporarily suspending payments of dividends to the shareholder due to the cash flow crunch associated with its investment program.” The company’s stock price dropped from $28.50 to $25.00 when this announcement was made. How would you interpret this change in the stock price? Would MM proposition holds in this circumstances?
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In this case price of stock is depreciated as TMB power company suspended payment of dividend.Company did not pay dividend due to cash crunch and its reduce stock price from $28.50 to 25.According to me the price of stock is reduced because new investors and existing shareholders does not want to invest in share of company which reduce the value of stock.
Here MM proposition is not applicable because MM approach explain the value of stock is not depend upon dividend but in this case the value of stock is reduced due to suspension of payment of dividend.
