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Dividend decisions
Financial Management
Practical sum 3 : How ke = eps /mps ?..why didn't we consider the ke formula used in cost of capital i.e, ke = d/p (7.5/100 )? Can we consider ke like this?
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P.E ratio = 12.5 Ke = 8 Ke = 1/P.E = 1/ eps/mps = mps/eps.. = 1/12.5 *100 = 8% We paying 100 for stock .(mps),for earning 12.5 ..(eps) P.e ratio = 12.5 % ( 12.5/100*100) Ke= D/p can taken when there is no retained earnings..all are paid as a dividend Earnings include both dividend and retained earnings.. When dividends are not paid , profits are retained ., Where returns are provided.. 10%/8%= 1.25 times of earnings
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