X Ltd is currently having 100000 equity shares of the face value of Rs 10 each. It is expected that company will have netprofit of Rs 500000/. Due to recessionary condition, company expects 10% return on investment. The equitycapitalization is 12%. Find out the market price per share according to Gordon Model under different payout ratios of40%, 60% and 80%.

Current price of stock is the price which can be paid for purchase of the stock. It is also called…

Answered: X Ltd is currently having 100000 equity…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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Sun Pharma Company earns Rs 10 per share, is capitalized at a rate of 12 per cent and has a rate of return on investment of 20 per cent. What should be the price per share at 70 per cent dividend pay-out ratio according to Walter and Gordon model respectively ? Is this the optimum pay-out ratio according to Walter Model ? Justify your answer showing relevant calculations. What are the similarities and dissimilarities between Walter and Gordon Model
Robi Axiata Limited has a book value of Tk 100 per share. Based on CAPM model, investors require an expected return of 10%. The company plans to invest a significant portion of their newly raised capital from IPO for network improvement. Analysts expect that return on equity will be 15% for the next three years and the company plans to retain 70% of their profit for further investment. After year 3, the ROE is expected to drop 10% and payout ratio increases to 0.6. What will be the stock value per share today?
A company will produce $3.00 in earnings per share at the end of the year. Reinvested earnings can produce a 14% return on equity. What is the PVGO if the company decides on a 30.0% plowback policy? Assume that investors have a 9.0% required rate of return. a. $10.42 b. $12.56 c. $13.86 d. $15.56
The current market price of Venus Filters Ltd is Rs.67. The expected dividend after a year is Rs.1.40, and this dividend is expected to grow at a constant rate of 10% p.a. What is the required rate of return for shareholders? a. 12.09% b. 8.12% c. 6.18% d. 0%
Walter and Gordon model analyse the impact of distribution of dividends on thevaluation of the firm but the formula used in both the cases are different. Company ABC Ltd wanted to evaluate the price of the share in both cases. The company earns ₹50 per share and expects the same for the next year. The cost of capital to the firm is11%. The company earns return on investment of 15% and the firm is planningdividend payout ratio of 60%. Calculate: Calculatea. Price of the share using Walter Model. Comment on the relationship between return oninvestment and cost of capital in the case above and decision of the firm whetherdividend is to be declared or not.
X Ltd. earns Rs. 5 per share is capitalised at a rate of 10% and has a rate of return on investment of 18%. According to Water's Formula - (i) What should be the price per share at 25% dividend payout ratio? (ii) Is this optimum payout ratio?
A firm in steady-state earned $5 per share this year and paid a $4 dividend. The firm is currently selling for $55. Assume an ROE of 8% and a constant discount rate of 10% 1 Calculate the current P/E ratio. 2 Calculate the justified current P/E ratio. 3 Calculate the intrinsic value of the firm. 4 Calculate the forward P/E ratio. S Calculate the justified forward P/E ratio.
A company is expected to pay out 40% of its expected earnings per share of €0.5 next year as dividends. The earnings are expected to grow 2% per year in perpetuity and the cost of equity is 7%. Supposing that the company is a stable growth dividend paying, calculate the expected PE ratio. P/E=Payout ratio*(1+g)/(r-g) A. 4 B. 8 C. 10 D. 20 E. 25
A firm that is currently unlevered has WACC = rS = 10%/year. This company plans to do a recapitalization by issuing debt and repurchasing equity. After the recapitalization, the debt-to-equity (D/E) ratio will be 0.5. If the cost of debt, rD, is 6%, what will be rS after the recapitalization?
A Company Devanshi Ltd has earnings of Rs 10 per share and gave out 40% of its earnings as dividend. The company is expecting a super normal growth rate of 40% for the next 4 years and then from the 5th year for the next 5 years the growth rate is expected to fall by 4% per year and then it stabilizes to 10% in the 10th year. If the required rate of return from equity share is 15%, calculate the intrinsic price of the Equity Share. Also, if this Equity share is available in the market for Rs 450, should an investor buy it?
*Please answer correctly and show calculations. Company: APIX (APX) Current price = $58.00 a share 2012 earnings = $3.625 Historical plowback ratio = 60% ROE = 14% Beta = 1.4 Risk free rate = 2% Market risk premium = 6% Forward P/E = 15 Unless otherwise stated, assume a required return (cost of equity) equal to 10% and a growth rate of 7%. a. If earnings grow 7% in 2013, what is 2013's expected dividend? b. What is the intrinsic value of APIX if it grew 8% in 2013, 8% in 2014, and 7% every year after?
1.a. Austin Metal Company reported Current Assets of $209,000 and Current Liabilities of $110,000. Calculate working capital and explain the results 1.b. The Company DEN has a beta of 1.30. The risk-free rate of return is 1.90 percent and the market rate of return is 5.10 percent. What is the CAPM cost of equity? kindly explain in detail

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