X Ltd. earns Rs. 5 per share is capitalised at a rate of 10% and has a rate of return on investment of 18%. According to Water's Formula - (i) What should be the price per share at 25% dividend payout ratio? (ii) Is this optimum payout ratio?

X Ltd. earns Rs. 5 per share is capitalised at a rate of 10% and has a rate of return on investment of 18%. According to Water's Formula - (i) What should be the price per share at 25% dividend payout ratio? (ii) Is this optimum payout ratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 7P

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Question

X Ltd. earns Rs. 5 per share is capitalised at a rate of 10% and has a rate of return
on investment of 18%. According to Water's Formula -
(i) What should be the price per share at 25% dividend payout ratio?
(ii) Is this optimum payout ratio?

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Step 2: Computation of Dividend per share.

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Step 3: Answer to part a. Computation of price per share.

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Step 4: Answer to part b. Optimum Payout ratio.

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