Q51009 With the help of following figures calculate the market price of a share of a company by using:

Walter’s formula

Dividend growth model (Gordon’s formula)

Earning per share (EPS)                                  ₹ 10

Dividend per share (DPS)                                ₹ 6

Cost of capital (k)                                           20%

Internal rate of return on investment          25%

Retention Ratio                                              60%

Best for AU Finance Solved Assignment and others

Solution:

Market price per share by

(i)          Walter’s formula:

21 8 image 314
21 8 image 315

Gordon’s formula (Dividend Growth model): When the growth is incorporated in earnings and dividend, the present value of market price per share (Po) is determined as follows

Gordon’s theory:

21 8 image 316

Where,

Po = Present market price per share.

E = Earning per share

b = Retention ratio (i.e. % of earnings retained)

r = Internal rate of return (IRR)

21 8 image 317

Total Views: 17

ed010d383e1f191bdb025d5985cc03fc?s=120&d=mm&r=g

DistPub Team

Distance Publisher (DistPub.com) provide project writing help from year 2007 and provide writing and editing help to hundreds student every year.