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7/29/2019 Dividend Decision Sol
1/25
DIVIDEND DECISION
Q1 a. Market price per share of the company at the end of the year (i.e P1)
i. When dividend not paid
P0 =
150 =
P1 = 150( 1.12) - 0
P1 = 168
ii. When Dividend paid
P0 =
150 =
P1 = 150( 1.12) - 8
P1 = 160
b. New shares to be issued by the company (i.e m)
i. When dividend not paid
m =
=
= 1,19,047.619047 shares
ii. When dividend paid
m =
=
= 1,75,000 shares
c. Value of Firm (i.e nP0)
i. When dividend not paid
nP0 =
=
= Rs 1500 lakh
ii. When dividend paid
nP0 =
=
= Rs 1500 lakh
Thus market value of the Firm is same (Rs 1500 lakh) whether dividend is paid or not
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q2 a. Market price per share of the company at the end of the year (i.e P1)
I When dividend not paid
P0 =
125 =
P1 = 125( 1.08) - 0P1 = 135
ii When Dividend paid
P0 =
125 =
P1 = 125( 1.08) - 6
P1 = 129
b. New shares to be issued by the company (i.e m)
i. When dividend not paid
m =
=
= 2962.962962 shares
ii. When dividend paid
m =
=
= 4961.240310 shares
c. Value of Firm (i.e nP0
)
i. When dividend not paid
nP0 =
=
= Rs 50 lakh
ii. When dividend paid
nP0 =
=
= Rs 50 lakh
Thus market value of the Firm is same (Rs 50 lakh) whether dividend is paid or not
PRAVINN
MAHAJAN
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7/29/2019 Dividend Decision Sol
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Q3 a. Market price of share according to MM approach
i. When dividend not paid
P0 =
15 =
P1 = 15( 1.14) - 1.35
P1 = 15.75
ii. When Dividend paid
P0 =
15 =
P1 = 15( 1.14) - 0
P1 = 17.10
b. Expected return after tax
i. If dividend paid
Dividend Received = Rs 1.35
Dividend after ordinary tax = 1.35 ( 10.3 )
= 0.945
Capital gains = 15.7515
= 0.75
Capital gains after tax = 0.75( 10.26)
= 0.555
Total Income after Tax = 0.945 + 0.555
= 1.5
Investment = Rs 15
Rate of Return = x 100
= 10%
ii. If dividend paid
Capital gains = 17.1015
= 2.1
Capital gains after tax = 2.1( 10.26)
= 1.554
Investment = Rs 15
Rate of Return = x 100
= 10.36%
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q4If r = 20% ( i.e r > ke)
1. DP ratio 10% i.e b = 90 %
P0=
=
= Rs 180
2. DP ratio 40% i.e b = 60 %
P0=
=
= Rs 160
3. DP ratio 80% i.e b = 20 %
P0=
=
= Rs 120
4. DP ratio 100% i.e b = 0 %
P0=
=
= Rs 100
If r = 10% ( i.e r = ke)
1. DP ratio 10% i.e b = 90 %
P0=
=
= Rs 100
2. DP ratio 40% i.e b = 60 %
P0=
=
= Rs 100
3. DP ratio 80% i.e b = 20 %
P0=
=
= Rs 100
4. DP ratio 100% i.e b = 0 %
P0=
=
= Rs 100
If r = 8% ( i.e r < ke)
1. DP ratio 10% i.e b = 90 %
P0=
=
= Rs 84
2. DP ratio 40% i.e b = 60 %
P0=
=
= Rs 88
3. DP ratio 80% i.e b = 20 %
P0=
=
= Rs 96
4. DP ratio 100% i.e b = 0 %
P0=
=
= Rs 100
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7/29/2019 Dividend Decision Sol
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Q5 E= Rs 6, kE= 10%, r= 20% , DP = 30%
P0 =
=
= Rs 102
According to Walter model, if r > KE, optimum DP ratio is 0% i.e Retention ratio should be 100%.
In given question DP is 30%, so it is not optimum ratio
Q6 Earnings of company = Rs 10,00,000
No. of shares = 2,00,000
EPS = Rs 5
DP ratio = 60%
Dividend per share = Rs 3 per share
i. Market value per share as per Walters model
P0 =
=
= Rs 34.26
ii. According to Walter model, if r > KE, optimum DP ratio is 0% i.e Retention ratio should
be 100%. If DP ratio is 0% then MP will be
P0 =
=
= Rs 52.083
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7/29/2019 Dividend Decision Sol
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Q7 Statement of EPS
Earnings 30,00,000
Less Preference dividend
12 % of 100 lakhs 12,00,000
Earnings for equity share holders 18,00,000
No. of shares 3,00,000
EPS Rs 6 per share
r = 20%
KE =
PE =
KE =
= x 100 = 14.285714%
Dividend per share if MP is Rs 42 per share
P0 =
42 =
42 x 0.14285714 = d +
6 = d + 8.4 - d
68.4 = d ( 1 - )
- 2.4 = - d ( 0.40)
d =
d = 6
DP ratio = x 100
= 100 %
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7/29/2019 Dividend Decision Sol
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Q8 Earnings Rs 2,00,000
No. of shares 20,000
EPS Rs 10 per share
Total dividend Rs 1,50,000
Dividend per share Rs 7.5 Current DP ratio 75%
KE =
= = 0.08 or 8%
r = x 100
= x 100
= 10%
If DP ratio is 75%, then according to Walter model MP of share is
P0 =
=
= Rs 132.81
According to Walter model if r > KE , then optimal dividend policy would be to pay Zero dividend.
Thus DP ratio 75% is not an optimum dividend policy. If no dividend is paid MP will be
P0 =
=
= Rs 156.25
So, MP can be increased by adopting a Zero dividend policy
ii. Companys Dividend policy will have no effect on the market value of share if r = K E,
i.e KE= 10%, And since PE =
So, PE at which dividend policy has no effect on market value of firm is = 10 times
iii. IF PE is 8 instead of 12.5, then which is the inverse of PE ratio would be 12.5 (i.e ) and in
such a situation KE> r and Market price as per Walter model would be
P0 =
=
= Rs 76
Since r < KE , optimum DP ratio will be 100%
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7/29/2019 Dividend Decision Sol
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Q9 Market price of share
Walter model P0 =
=
= Rs 55
Gordon Model P0 =
=
= Rs 60
Q10 MP per share according to Gordon Model
Book value per share = Rs 137.80Return on Equity = 15%
Thus earnings = 15% x 137.80
= Rs 20.67
DP Ratio = 1 - 0.6
= 0.4 or 40%
P0 =
=
= Rs 91.87
MP per share according to Walter Model
P0 =
=
= Rs 103.35
MP per share according to perpetual growth model
P0 =
=
= Rs 91.89
PRAVINN
MAHAJAN
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7/29/2019 Dividend Decision Sol
9/25
Q11 a. MP of share = Rs 40
EPS = Rs 12 per share
DP ratio = 45%
b = 10.45 = 0.55
r = 14%
P0 =
40 =
= + 0.077
= 0.212 or 21.2%
b. Dividend distributed during the year = 10 Lakh x 10 x 0.20
= Rs 20 lakh
Dividend per share =
= Rs 20 per share
Value of share = P0 =
=
= Rs 156.923
Q12 According to Linter model
Current Year dividend = ( 1 - A) x Last Year Dividend + EPS X DP ratio x A
a. Last year Dividend = Rs 9.8
Adjustment 45%Pay out ratio 60%
EPS Rs 20
Current year dividend = ( 10.45) 9.8 + 20 x 0.6 x 0.45
= Rs 10.79
b. If Adjustment is 20%
Current year dividend = ( 10.2) 9.8 + 20 x 0.6 x 0.2
= Rs 10.24
Q13 According to Linter model
Current Year dividend = ( 1 - A) x Last Year Dividend + EPS X DP ratio x A
Last year Dividend = Rs 1.2
Adjustment 0.7
Pay out ratio 0.6
EPS Rs 3
Current Year dividend = ( 10.7) 1.20 + 3 x 0.6 x 0.7
= Rs 1.86
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q14 According to Linter model
Current Year dividend = ( 1 - A) x Last Year Dividend + EPS X DP ratio x A
Last year Dividend = Rs 5
Adjustment 0.5
Pay out ratio 70%
EPS Rs 10
Current Year dividend = ( 10.5) 5 + 10 x 0.7 x 0.5
= Rs 6
If incremental dividend to be maintained is 70%
Current Year dividend = ( 10.7) 5 + 10 x 0.7 x 0.7
= Rs 6.4
If incremental dividend is 30%
Current Year dividend = ( 10.3) 5 + 10 x 0.7 x 0.3
= Rs 5.6
Q15 a. According to residual approach, current years profits or earnings can be used for
financing capital expenditure and after financing capital expenditure, balance is
distributed as dividend
Current year profit = x 20
= Rs 600,00,000
So, capital expenditure of Rs 600,00,000 can be incurred without raising additional equity
b. i. Equity FundsESC 300,00,000
Reserves 1500,00,000
1800,00,000
Debt
12% debt 1000,00,000
15% debt 200,00,000
1200,00,000
Debt equity ratio = 12 : 18
= 2 : 3
Capital expenditure = 550 lakh
Raised from equity
reserves = 550 lakh x
= Rs 330 lakh
Raised from debt = Rs 220 lakh
Dividend distribution = Rs 600 lakhRs 330 lakh
= Rs 270 lakh
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7/29/2019 Dividend Decision Sol
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ii. Dividend distribution without bothering about capital structure
Rs 600 lakh550 lakh
= Rs 50 lakh
c. If capital expenditure is Rs 800 lakh
i. Dividend distribution without affecting capital structure
Debt equity ratio = 2: 3
Capital Expenditure financed by equity reserves
800 lakh x = Rs 480 lakh
Dividend distribution = 600 lakh480 lakh
= 120 lakh
Dividend per share = = Rs 4 per share
ii. Dividend distribution without bothering about capital structure
Since capital expenditure of Rs 800 lakh is more than available profit of
Rs 600 lakh, so nil dividend
Q16 i. Statement of Dividend per share and external financing under residual approach
Particulars 1 2 3 4
Profit after tax 40 45 50 35
Capital expenditure 10 50 20 50
Profit for distribution 30 - 30 -
Dividend per share
(no of shares 8 crore) 3.75 - 3.75 -External financing - 5 - 15
ii Statement of Dividend per share and external financing if Debt equity ratio
of 7:3 is to be maintained
Particulars 1 2 3 4
Profit after tax 40 45 50 35
Capital expenditure 10 50 20 50
Capital Expenditure from equity 10 x = 3 50 x = 15 20 x = 6 50 x = 15
PAT for distribution 37 30 44 20
Dividend per share = 4.625 = 3.75 = 5.5 = 2.5
External financing 103 = 7 5015 = 35 206 = 14 5015 = 35
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7/29/2019 Dividend Decision Sol
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iii. Statement of Dividend per share and external financing required
if Dividend Pay-out ratio is 40%
Particulars 1 2 3 4
Profit after tax 40 45 50 35
Capital expenditure 10 50 20 50
Profit for dividend (40%) 16 18 20 14
Dividend per share = 2 = 2.25 = 5.5 =2.5
Profit for capital exp. 24 27 30 21
External financing - 23 - 29
iv. Statement of Dividend per share and external financing if DP ratio
is 30% and minimum dividend per share to be Rs 1.5 per share
Particulars 1 2 3 4Profit after tax 40 45 50 35
Capital expenditure 10 50 20 50
Total dividend, if div per share
is Rs 1.5 per share 12 12 12 12
Total dividend if
DP ratio is 30% 12 13.5 15 10.5
Dividend payable 12 13.5 15 12
Dividend per share 1.5 1.6875 1.875 1.5
Profit for cap exp. 28 31.5 35 23
External financing - 18.5 - 27
v. I II III IV
Div per share 3.75 16.375 8.5 6.5625
Total Dividend 60 cr 131 cr 68 cr 52.5 cr
External financing 20 cr 91 cr 52 cr 45.5 cr
In case II both shareholders and Financial institutions will be happy
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q17 Statement of Current market Price
A B
Market value of share after 1 year 640 600
Less Current market price p q
Capital gains 640p 600q
Less tax on capital gains @ 10% 640.10p 600.10q
Capital gains after tax (640p)(640.10p) (600q)(60q)
= Rs 5760.90p = Rs 5400.90q
Dividend receivable - Rs 40
Less tax on dividend 15% - Rs 6
Dividend income after tax - 406 = Rs 34
Return on investment in shares Rs 5760.90p 5400.90q + 34
Return on investment 16% 16%
Current MP 0.16 = 0.16 =
p = 543.40 p = 541.51
Q18 Statement of cash flow if dividend distributed Now
Earnings per share Rs 200
Dividend Pay out Rs 60
No. of share outstanding 2 crore
Total dividend pay-out ( 60 x 2crore) 12000 lakh
Less Dividend distribution tax x 12,000 1655.17 lakh
Amount received by investors Rs 10344.83 Lakh
Amount invested in Bank Rs 10344.83 lakh
Interest on Bank deposits 9%
Personal Income tax at 25% on 9% interest 2.25%
Effective interest rate on deposits 6.75%
Post maturity value of deposits
10344.83 x (1.0675)3 Rs 12,584.49 lakh
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7/29/2019 Dividend Decision Sol
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Statement of cash flow if dividend distributed 3 years later
Earnings per share rs 200
Dividend pay-out (200 x 0.3) Rs 60
No of shares outstanding 2 crore
Total amount payable for dividend pay-out Rs 12000 lakh
Amount invested in Bank by MPL Rs 12000 lakh
Interest on Bank deposits 11%
Corporate tax rate on Interest 34% of 11% 3.74%
Effective Interest rate 7.265
Maturity value of deposits 12000 lakh (1 + 0.0726)3 14,808 lakh
Less dividend distribution tax 14,808 lakh x 2042.48 lakh
Amount available for investors 12,765.52 lakh
It is better for company to retain the dividend payout and invest the same in Bank and
distribute after 3 years, as it yields higher return to investors
Q19 d0 = Rs 2
g = 5%
KE = 10( 10.3) = 7%
Current Market price P0 =
Before budget announcement = = Rs 42
After Budget announcement = = rs 94.50
Q20 If the company invests Rs 1000 in Market
Pre tax rate of return on investment = 8%
Corporate tax rate = 36.75%
Effective rate of return on investment = 8(1-0.3675)
= 5.06%
Matured value of deposit = 1000(1.0506)5
= Rs 1279.93
Dividend payable = Rs 1279.93
Less dividend distribution tax 12.5% = Rs 142.21 1279.93 x
Amount available to shareholders = Rs 1137.72
PRAVINN
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7/29/2019 Dividend Decision Sol
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If dividend is distributed Now
Dividend to be distributed Rs 1000
Dividend distribution tax 1000 x Rs111.11
Amount available to shareholders Rs 888.89
Amount invested in bank for 5 years Rs 888.89
Rate of Interest 8%
Income tax rate for shareholders 30
Effective ROI 8 ( 10.3)
5.6%
Amount in the hands of investors 888.89(1.056)5
Rs 1167.26
Company should distribute dividend today and shareholder should invest in bank, as it will
increase yield of shareholders
Q21 i. Statement of Post tax return of A
Amount invested Rs 100
Dividend paid by co. Rs 15
Tax on dividend 30% Rs 4.5
Dividend income after tax Rs 10.50
Return after tax x 100 10.50%
ii. Statement of Post tax return on share of B
Amount invested Rs 100
Appreciation in value of share 15% p.a ( assumed compounded)MP of share after 2 years 100(1.15)
2Rs 132.25
Capital gain 32.25
Tax on capital gain 30% x 32.25 Rs 9.675
Capital gain after tax Rs 22.575
Return after tax x 100 22.575 5 for 2 years i.e 11.2875% p.a
iii. Statement of Post tax return of A (if tax on dividend is 10%)
Amount invested Rs 100
Dividend paid by co. Rs 15
Tax on dividend 10% Rs 1.5
Dividend income after tax Rs 13.50
Return after tax x 100 13.50%
PRAVINN
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7/29/2019 Dividend Decision Sol
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Statement of Post tax return on share of B (if tax on capital gains 15%)
Amount invested Rs 100
Appreciation in value of share 15% p.a ( assumed compounded)
MP of share after 2 years 100(1.15)2
Rs 132.25
Capital gain 32.25
Tax on capital gain 15% x 32.25 Rs 4.8375
Capital gain after tax Rs 27.4125
Return after tax x 100 27.4125 % for 2 years i.e 13.706% p.a
Q22 Current market price of share is present value of all future dividends. Co is paying Rs 13 per
share indefinitely
Current market price =
= Rs 144.44
Q23 Current market price of share is present value of all futuredividends.
Co is planning to pay ( 5 x 1.2) Rs 6 per share indefinitely
Current market price =
= Rs 30
Q24 Current market price of share is present value of all future dividends.
If life expectancy of MD is 20 years, then company will pay dividend of Rs 30 per share
indefinitely from year 21
Current market price = x 0.149
= Rs 44.70
Market Price of share if company pays a dividend of Rs 5 per share indefinitely
Current market price =
= Rs 50 per share
Thus if MDs dividend policy is adopted Value of share is reduced by Rs 5.30 per share
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q25 a. Current market price of share is present value of all future dividends.
P0 =
= = Rs 30
B i. Earning Price Model
P0 =
= = Rs 32.786
If Current market price per share is Rs 35 , share is overvalued
ii According to PE model
PE =
= = 9.524 times
Current market price = PE x EPS
= 9.524 x 2.25
= Rs 21.429
Q26 a. Growth rate of dividends
d5 = d1( 1 + g)4
14.03 = 10.7 ( 1 + g )4
( 1 + g) =
g = 1.07001
= 0.07 or 7%
b. Cost of Equity on old shares
KE = + g
= + 0.07
= 19%
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7/29/2019 Dividend Decision Sol
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c. Cost of equity of new shares
KE = + g
= + 0.07
= 19.38 %
Q27 d0 = Rs 2
g = 5%
Ke = 15.5%
a. MP If g is 5%
P0 =
= = Rs 20
b. MP if g is 8%
P0 =
= = Rs 28.8
c. MP if g is 3%
P0 =
= = Rs 16.48
Q28 Growth rate12 year = 12%
34 year = 10%
From 5thyear = 8%
d0 = Rs 1.50 r = 16%
Current Market price or intrinsic value of share is Present value of all future dividends
Current market price = Present value of d1to d4 + Present value of P4
= 1.68 x 0.862 + 1.88 x 0.743 + x 0.552
+ 2.068 x 0.640 + 2.274 x 0.552= 5.42 + 16.94
= 22.36
(PTO)
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7/29/2019 Dividend Decision Sol
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Price at the end of 1st, 2nd, 3rd, 4th, 5thyear
Year 1 P0 =
22.36 =
P1 = 24.257
Year 2 P1 =
24.257 =
P2 = 26.25812
Year 3 P2 =
26.25812 =
P3 = 28.3914
Year 4 P3 =
28.3914 =
P4 = 30.66
Year 5 P4 =
30.66 =
P5 = 33.10
Q29 d0 = 3.50
g = 6%
r = 15%
Intrinsic value of share P0 =
= = Rs 41.222
If Current market price is Rs 50, g is
P0 =
50 =
7.5 - 50g = 3.5 + 3.5g
53.5 g = 4
g = = 0.0748 or 7.48%
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7/29/2019 Dividend Decision Sol
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Q30 Growth rate
12 years 10% d0 = Rs 5
35 years 12% r = 17.5%
67 12.50%
Above 7 11%
Current market price is present value of all future outflows
Year Dividend / outflow factor Present value / Price
1 5.50 0.851 4.681
2 6.05 0.724 4.380
3 6.776 0.616 4.174
4 7.589 0.525 3.984
5 8.5 0.446 3.791
6 9.5625 0.380 3.634
7 10.758 0.323 3.475
7 = 183.714 0.323 59.340
Current market price 87.459
Q31 earnings - 2.4 lacs
Shares - 1 lac
KE - 12%
i. MP if all earnings are distributed as dividend
PE =
= = 8.333 times
PE =
8.333 =
Price = 8.333 x 2.4 = Rs 20
ii. If dividend payout is 50 % and earnings and dividends likely to grow by 8%
CMP =
= Rs 32.40
iii. Earnings and dividends grow at 10% for 2 years and at 4 % thereafter
Year Dividend factor Present value
1 2.4 x 1.1 = 2.64 0.893 2.358
2 2.904 0.797 2.314
2 = 37.752 0.797 30.088
Market price 34.76
or
CMP =
= Rs 20
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7/29/2019 Dividend Decision Sol
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Q32 E0 = 2 Growth rate of EPS DP ratio
14 years 20% ------ 25%
58 years 12% ------ 40%
Above 8 years 6% ------ 50%
At the end of 8thyears PE ratio is 8.5 times, EPS in denominator is of 9thyear
i. Statement of annual EPS and DPSYear EPS DPS
1 2.4 0.6
2 2.88 0.72
3 3.456 0.864
4 4.1472 1.0368
5 4.645 1.858
6 5.2024 2.081
7 5.827 2.331
8 6.526 2.6104
9 6.918 3.459
Current market price is PV of all future dividendsPE (of 8
thyr using 9
thyr EPS) = 8.5
Price at the end of 8 thyr = PE (8thyr) x EPS (9thyr)
= 8.5 x 6.918
= Rs 58.803
Current Market Price = Present value of d1 - d8 + Present value of MP at the
End of 8thyear
= 0.6 x 0.877 + 0.72 x 0.769 + 58.803 x 0.351
0.864 x 0.675 + 1.0368 x 0.592
1.858 x 0.519 + 2.081 x 0.456
2.331 x 0.4 + 2.6104 x 0.351
= 6.039 + 20.640= Rs 26.68
b. Expected rate of Return, when stock price is Rs 30
Rate of return will be that rate at which present value of cash outflow (dividend) is equal
to cash inflow (MP) i.e rate at which PV of all dividend is $ 30
Present value of all cash outflows at 14% = 26.68
Present value of cash outflow at 10% = 0.6 x 0.909 + 0.72 x 0.826 +
0.864 x 0.753 + 1.0368 x 0.683 + 1.858
x 0.620 + 2.081 x 0.564 + 2.331 x 0.513
2.6104 x 0.467 + 58.803 x 0.467= Rs 34.70
Expected rate of return is
= 14 - x 4
= 12.344%
14%------------26.68
? ------------- 30
10%------------34.70
For diff of IRR of 4%, change in price is
8.02, for diff in rate of 3.32 Change in
price is 14 - x 4
PRAVINN
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7/29/2019 Dividend Decision Sol
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Q33 PE ratio = 7.5
Retained earnings Rs 3 (37.5%)
Total earnings = Rs 8 per share Div per sh = 83 = 5
i. MP = PE x EPS
= 7.5 x 8
= Rs 60
KE = + g
= + 0.12
= 21.33%
ii. P0 =
=
= Rs 67.80
iii. P0 =
=
= Rs 191.67
Q34 Statement of profit after Tax
Operating Profit 25,00,000
Less Interest on secured loan 3,75,000 ( 25 lac x 0.15)
Interest on unsecured loan 1,25,000 (10,00,000 x 0.125)
Profit before tax 20,00,000
Tax 10,00,000
Profit after tax 10,00,000
Number of equity shares 2,50,000
EPS 4
PE ratio (given) 12.5
Value of share 4 x 12.5 Rs 50
Q35 EPS0 = Rs 5 Growth rate Past 4 years 4%
DPS0 = Rs 2 Future 2%
Current PE = 7 times = 14%
i. Current MP P0 =
= = Rs 17
Estimated PE ratio = = 3.4 times
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ii. Current PE ratio = 7 times
Current EPS = 5
Actual price in the market = 7 x 5 = Rs 35
P0 =
35 =
35 (0.14 - g) = 2 ( 1 + g)
4.9 - 35g = 2 + 2g
37 g = 2.9
g = 0.0784 or 7.84%
Q36 d1 Rs 2 per share
g 7%
RF 9%
r 13% 1.5 , likely to increase to 1.75
KE = RF+ ( RM - RF)
= 9 + 1.5 (139)
= 15%
P0 =
= = Rs 26.75
If increased to 1.75
KE = RF+ ( RM - RF)
= 9 + 1.75 (139)
= 16%
P0 =
= = Rs 23.778
Q37 RF = 10% d (2002) = d7 = Rs3
RM- RF= 5% d (1996) = d1 = Rs 2.115
= 1.6
Growth rate d7 = d1( 1 + g )6
3 = 2.115 ( 1 + g)6
g = - 1
= 0.06 or 6%
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7/29/2019 Dividend Decision Sol
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Cost of Equity = RF+ ( RM - RF)
= 10 + 1.6 (5 )
= 18%
P0 =
= = Rs 26.5
Q38 i. d1 = Rs 7
DP ratio = (10.3)
= 0.7
EPS = = Rs 10
ii. g = b.r
0.06 = 0.3 x r
r = = 0.2 or 20%
iii. Value of share Value of share without + Growth
(along with growth = growth opportunities opportunities
Opportunities)
= + Vg
= + Vg
175 = 100 + Vg
Vg = 175 - 100
= Rs 75
Q39 KE = 15%
P0 = Rs 80 ( after growth)
Value of growth opportunities = Rs 20
Value of share without growth = Rs 80Rs 20 = Rs 60
Value of share Value of share without + Growth
(along with growth = growth opportunities opportunities
Opportunities)
= + Vg
80 = + 20
60 =
EPS = 60 x 0.15
= Rs 9
Earning Price Ratio = = = 0.1125
PRAVINN
MAHAJAN
CA CLASESS
7/29/2019 Dividend Decision Sol
25/25