The earnings per share of company are ₹ 8 and the rate of capitalisation applicable to the company is…
The market value of the share is ₹ 110. Dividend per share is 25% × ₹ 8 = ₹ 2, leaving retained earnings of ₹ 6 per share. Walter's formula gives P = [D + (r/k)(E − D)]/k =…
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The earnings per share of company are ₹ 8 and the rate of capitalisation applicable to the company is 10%. The dividend payout ratio is 25%. Using Walter’s formula of dividend payout, compute the market value of the company’s share, if the productivity of retained earnings is 15%.
Answer and explanation
Correct answer D
The market value of the share is ₹ 110. Dividend per share is 25% × ₹ 8 = ₹ 2, leaving retained earnings of ₹ 6 per share. Walter's formula gives P = [D + (r/k)(E − D)]/k = [2 + (0.15/0.10) × 6]/0.10 = ₹ 110.
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West Bengal SET (WB SET)