Manag., July-2018 – Q85

0. A firm earns a return on investment at the rate of 20%, earning per share is Rs.15, the payout ratio is 50%, cost of equity is 12%; the market price per share as per Walter’s model is:

Answer
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Option : D
Explanation : Walter develops a model where the Market Price of a Share is expressed as follows:
P = {D + A/P (E – D)}/P
Where, D = the dividend per share
E = the earning per share
A = the return an investment
P = the market capitalization rate
Here, A = 20%
P = 12%
E = 15

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