CA Inter P6 · Chapter 8 · Question 1 of 8
Kamal Ltd has EPS of ₹ 12 and pays a dividend of ₹ 4 per share. Its internal rate of return is 18% and the equity capitalisation rate is 15%. Using Walter's model, the market price per share is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹ 90.67
Explanation
Walter's model: P = [D + (r/Ke)(E - D)] / Ke = [4 + (0.18/0.15)(12 - 4)] / 0.15 = (4 + 1.2 x 8) / 0.15 = 13.6 / 0.15 = ₹ 90.67. E/Ke = ₹ 80 would be the price at 100% payout, which is lower because r is greater than Ke.
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