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A firm has EPS ₹5, Walter's r = 15%, Ke = 12%, payout 40%. Per Walter, share price is:
A₹47.92
B₹41.67
C₹38.89
D₹50.00
Answer & Solution
Correct answer: A. ₹47.92
1. D = 0.40 × 5 = ₹2; E − D = ₹3.
2. P = [D + (E−D)(r/Ke)] / Ke = [2 + 3 × (0.15/0.12)] / 0.12.
3. = [2 + 3 × 1.25] / 0.12 = [2 + 3.75] / 0.12 = 5.75 / 0.12 ≈ ₹47.92.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §1 — Walter's Model_
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