Illustration of Irrelevance ■ Consider a firm that can either pay out dividends of $10,000 per year for each of the next two years, or can pay $9,000 next year,reinvest the other $1,000 into the firm,and then pay $11,120 next year.Investors require a 12%return. Market Value with constant dividend $16,900.51 Market Value with reinvestment $16,900.51 If the company will earn the required return,then it doesn't matter when it pays the dividends7 Illustration of Irrelevance n Consider a firm that can either pay out dividends of $10,000 per year for each of the next two years, or can pay $9,000 next year, reinvest the other $1,000 into the firm, and then pay $11,120 next year. Investors require a 12% return. q Market Value with constant dividend = $16,900.51 q Market Value with reinvestment = $16,900.51 n If the company will earn the required return, then it doesn’t matter when it pays the dividends