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A firm has EPS ₹10, retention ratio 60%, r = 12%, Ke = 10%. Per Gordon, share price is:
A₹100.00
B₹142.86
C₹128.57
D₹200.00
Answer & Solution
Correct answer: B. ₹142.86
1. P = E(1 − b) / (Ke − br) = 10 × (1 − 0.6) / (0.10 − 0.6 × 0.12).
2. = 10 × 0.4 / (0.10 − 0.072) = 4 / 0.028.
3. Result ≈ ₹142.86.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §1 — Gordon's Model_