Question
Satyam Ltd. has a WACC of 5%. The sustainable growth
rate of the company is 3%. The stock is trading at the price of Rs. 40 in the market. Assuming the markets are efficient, what should be earnings per share of the fiscal year just ended?Solution
As per Gordon Growth Model Let earning for this year be E Price = Earning for next year / (WACC – growth rate) 40 = E*(1+0.03) / (5% - 3%) 0.8 / 1.03 = E E = 0.77
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