Doubt

According to Walter Model when r is > Ke, zero dividend payout is optimal, and when r is < Ke, 100% payout is optimal. By adopting these optimal dividend policies theoretically prices can be increased. However when r = Ke prices will not be influenced by dividend policy. That is at any payout ratio price of the share would be same. Here r is 10%(given). So Ke should be 10%. So PE = 1/Ke Therefore when PE = 10, dividend will not have any impact on value of the share

vishwam mandepudi

Qualified CA

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30-Sep-21 15:29

OK thank you

Thread Starter

Miradevi S

CA Final

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30-Sep-21 18:41

In this same sum I have another doubt in 3rd point we have to find market price per share as per the given info and we can find out optimum div payout ratio as per Walter's model and market value at that payout ratio if it not asked

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Miradevi S

CA Final

★ 16K+

30-Sep-21 19:01

Yes you need to compute price using given info and also need to compute with Walter optimal dividend policy.

vishwam mandepudi

Qualified CA

★ 2K+

30-Sep-21 19:06

OK ok thank you

Thread Starter

Miradevi S

CA Final

★ 16K+

30-Sep-21 19:42

We have to find dividend from EPS. In Gordon's model po= D1/(ke-g) =E(1-b)/ke-g When we directly apply div payout ratio on EPS without using E(1-b) for numerator then we assume that div to be D 1 right?

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Miradevi S

CA Final

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30-Sep-21 20:07

Is it correct

Thread Starter

Miradevi S

CA Final

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01-Oct-21 10:06

When expected EPS is given, you will get D1 by applying dividend payout ratio on EPS

vishwam mandepudi

Qualified CA

★ 2K+

01-Oct-21 10:58

OK thank you very much sir

Thread Starter

Miradevi S

CA Final

★ 16K+

01-Oct-21 11:44