CA Intermediate · Financial Management and Strategic Management · Dividend Decision
Meera Foods has EPS of Rs 10, r = 20%, k = 10%. Using Walter's model, what is the market price per share if the payout ratio is 40%?
The price is Rs 160 per share. Dividend is Rs 4 and retained earnings are Rs 6; Walter's formula gives (4 + 2 x 6) divided by 0.10, which equals Rs 160.
- ARs 140
- BRs 160
- CRs 180Correct
- DRs 200
Explanation
DPS = 0.40 x 10 = Rs 4. Retained EPS = Rs 6. P = [D + (r/k)(E - D)] / k = [4 + (0.20/0.10) x 6] / 0.10 = (4 + 12) / 0.10 = Rs 160. Hence the correct value is Rs 160, matching option 2 only if listed; the computed value is Rs 160.
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