Question
A company earns ₹20,00,000. Capitalisation rate is
10%. Equity capital is ₹1,00,00,000 (₹10 each). Dividend payout ratio is 40%. According to Walter’s Model, price per share = ? (Assume r = 12%).Solution
E = EPS = 20,00,000 / 10,00,000 = ₹2. D = 40% × 2 = 0.8. P = [D + (r/k)(E – D)] / k = [0.8 + (0.12/0.10)(1.2)] / 0.10 = [0.8 + 1.44] / 0.10 = 2.24/0.10 = ₹22.4. × 5 (since face value ₹10) = ₹112.
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