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NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

Shares of Kaveri Ltd. have a book value per share of Rs 200, earnings per share of Rs 30 and a dividend payout ratio of 40%. The stock trades at a P/E of 15. Which statement is correct?

Price is Rs 450, price-to-book is 2.25 and dividend per share is Rs 12. Price equals P/E of 15 times EPS of Rs 30, P/B divides Rs 450 by book value of Rs 200, and dividend is the 40% payout applied to EPS.

  1. APrice is Rs 450, price-to-book is 2.25 and dividend per share is Rs 12Correct
  2. BPrice is Rs 450, price-to-book is 2.25 and dividend per share is Rs 18
  3. CPrice is Rs 450, price-to-book is 1.50 and dividend per share is Rs 12
  4. DPrice is Rs 300, price-to-book is 1.50 and dividend per share is Rs 12

Explanation

Price = P/E x EPS = 15 x 30 = Rs 450. P/B = 450/200 = 2.25. Dividend per share = 40% x 30 = Rs 12. Rs 18 uses 60% (retention) instead of payout; 1.50 and Rs 300 come from wrong price or base.

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