PBT 8400000

less Tax 2520000

PAT 5880000

dividend rate 300

dividend yield 21.43%
divident payout 51.02041
P=(D+(E-D)*r/ke)/ke
E 10 10 10 10 10 10
ke/rate of capitalization 10% 10% 10% 10% 10% 10%

r>ke r=ke r<ke

situation 1 situation 2 situation 3
r 15% 10% 5%
payout ratio 0% 0% 0%
div= payout percent * E 0 0 0
Walter is trying to tell u that a company wh
Payout 150 100 50
it is useful to take dividend from the compa

situation 4 situation 5 situation 6

r 15% 10% 5%
payout ratio 50% 50% 50%
div= payout percent * E 5 5 5

Payout 125 100 75

situation 7 situation 8 situation 9

r 15% 10% 5%
payout ratio 100% 100% 100%
div= payout percent * E 10 10 10

Payout 100 100 100

 10 10 10
10% 10% 10%

to tell u that a company whose payout ratito is greater than ke, the value of share decreases. Whenever payout ratio is higher the share p

ke dividend from the company or not

yout ratio is higher the share price is lower.
P=DO(1+G)/Ke-g
Growth rate= r*RETENTION RATIO
if growth rate is higher than ke, Gordon model isnt applicable

E 10 10 10 10 10 10
ke/rate of capitalization 15% 15% 15% 15% 15% 15%

r>ke r=ke r<ke

situation 1 situation 2 situation 3
r 20% 15% 10%
payout ratio 50% 50% 50%
div= payout percent * E 5 5 5
retention 50% 50% 50%
growth rate 10.0% 7.5% 5.0%
P 110 71.6666667 52.5

situation 4 situation 5 situation 6

r 20% 15% 10%
payout ratio 75% 75% 75%
div= payout percent * E 7.5 7.5 7.5
retentions 0.25 0.25 0.25
growth rate 5.00% 3.75% 2.50%
P 78.75 69.1666667 61.5

whenever rate of return is higher than ke, the company is pofitable.

P=(D+(E-D)*r/ke)/ke

rate of return 12%

cost of capital (ke) 10%

rate of return>ke
according to walter model, expected price is highest when dividend payout ratio is lowest

dividend payout ratio 0%

dividend 0
eps 10
dps 0

P 120
P=(D+(E-D)*r/ke)/ke

rate of return 15%

cost of capital (ke) 12%

dividend payout ratio 60%

dividend 0
eps 5
dps 3

P 45.83333

rate of return>ke
according to walter model, expected price is highes when dividend payour ratio is lowest

dividend payout ratio 0%

dividend 0

P 52.08333
P=(D+(E-D)*r/ke)/ke

NPAT 3000000
PREFERENCE 1200000 12% of 100 lak
NP available to equity 1800000
No of equity shares 300000
eps 6
dps
P 42
r 20%
ke 16%

42=(D+(6-D)*20%/16%)/16%
D 3.12

PAYOUT 52.00%
P=DO(1+G)/Ke-g
Growth rate= r*RETENTION RATIO

ke 15%
fv 10

g 2%
D 20%

DPS 2

P 15.69231
P=DO(1+G)/Ke-g
Growth ratr*RETENTION RATIO

ke 15.5% 15.5% 15.5%

fv

g 5% 3% 8%
D

DPS 2 2 2

P 20 16.48 28.8
P=DO(1+G)/Ke-g
Growth rate= r*RETENTION RATIO

E 11.04

ke 9.20% rf+B(Rm-Rf)
fv
risk free rate 6%
g 6%
D
beta 0.8
DPS 6
market risk premium (rm-rf) 4%
P
P=(D+(E-D)*r/ke)/ke

current price 90
expected eps 18
div payout 60%
Expected DPS(D) 10.8
ke 10%

90=(10.8+((18-10.8)*0.20/KE))/KE
90KE=10.8+(7.2)*0.2/KE
90*KE=10.8+1.44/KE
90*KE^2=10.8KE+1.44
90*KE^2-10.8KE-1.44=0
KE=20%
dividend per share (D1) 6 SITUATION 1= IF DIVIDEND IS DECLARED
price per share(P0) 100 P0=(D1+P1)/(1+KE)
KE 10% 100=(6+P1)/(1+0.1)
100*1.10=(6+P1)
110-6=P1
P1 104

VERIFICATION
EARNING 1000000
LESS DIVIDEND 600000
RETAINED 400000
INVESTMENT TARGET 2000000
FRESH ISSUE 1600000
EXPECTED PRICE 104
NUMBER OF SHARES ISSUED 15384.6154
ORIGINAL NO OF SHARES 100000
TOTAL NUMBER OF SHARES 115384.615
EXPECTED PRICE 104
VALUE OF COMPANY 120000000 1109.467
D IS DECLARED SITUATION 2 - IF DIVIDEND IS NOT DECLARED
P0=(D1+P1)/(1+KE)
100=(0+P1)/(1+0.1)
100*1.10=(6+P1)
110-0=P1
P1 110

EARNING 1000000
LESS DIVIDEND 0
RETAINED 1000000
INVESTMENT TARGET 2000000
FRESH ISSUE 1000000
EXPECTED PRICE 110
NUMBER OF SHARES ISSUED 9090.90909090909
ORIGINAL NO OF SHARES 100000
TOTAL NUMBER OF SHARES 109090.909090909
EXPECTED PRICE 110
VALUE OF COMPANY 120000000 991.7355
P0 100 SITUATIONIF DIVIDEND IS DECLARED
KE 10% P0=(D1+P1)/(1+KE)
DPS 5 100=(5+P1)/(1+0.1)
100*1.10=(5+P1)
110-5=P1
P1 105

VERIFICATION
EARNING 500000
LESS DIVIDEND 250000
RETAINED 250000
INVESTMENT TARGET 1000000
FRESH ISSUE 750000
EXPECTED PRICE 105
NUMBER OF SHARES ISSUED 7142.8571429
ORIGINAL NO OF SHARES 50000
TOTAL NUMBER OF SHARES 57142.857143
EXPECTED PRICE 105
VALUE OF COMPANY 6000000 544.2177
SITUATION 2 - IF DIVIDEND IS NOT DECLARED
P0=(D1+P1)/(1+KE)
100=(0+P1)/(1+0.1)
100*1.10=(6+P1)
110-0=P1
P1 110

VERIFICATION
EARNING 500000
LESS DIVIDEND 0
RETAINED 500000
INVESTMENT TARGET 1000000
FRESH ISSUE 500000
EXPECTED PRICE 110
NUMBER OF SHARES ISSUED 4545.455
ORIGINAL NO OF SHARES 50000
TOTAL NUMBER OF SHARES 54545.45
EXPECTED PRICE 110
VALUE OF COMPANY 6000000 495.8678
P0 100 SITUATIONIF DIVIDEND IS DECLARED
KE 10% P0=(D1+P1)/(1+KE)
DPS 5 100=(5+P1)/(1+0.1)
100*1.10=(5+P1)
110-5=P1
P1 105

VERIFICATION
EARNING 250000
LESS DIVIDEND 125000
RETAINED 125000
INVESTMENT TARGET 1000000
FRESH ISSUE 375000
EXPECTED PRICE 105
NUMBER OF SHARES ISSUED 3571.429
ORIGINAL NO OF SHARES 25000
TOTAL NUMBER OF SHARES 28571.43
EXPECTED PRICE 105
VALUE OF COMPANY 3000000 272.1088
SITUATION 2 - IF DIVIDEND IS NOT DECLARED
P0=(D1+P1)/(1+KE)
100=(0+P1)/(1+0.1)
100*1.10=(6+P1)
110-0=P1
P1 110

VERIFICATION
EARNING 250000
LESS DIVIDEND 0
RETAINED 250000
INVESTMENT TARGET 1000000
FRESH ISSUE 250000
EXPECTED PRICE 110
NUMBER OF SHARES ISSUED 2272.727
ORIGINAL NO OF SHARES 25000
TOTAL NUMBER OF SHARES 27272.73
EXPECTED PRICE 110
VALUE OF COMPANY 3000000 247.9339
Equity share capital 1000000
Face value per sharw 10
number of shares 100000
bonus shares 1:02
no of bonus 50000
face value of bonus 500000
liabilities amt assets amt
Equity share capital of 10 each 1500000 Fixed asset 1600000
General Reserve(1500000-1000000) 1000000 Current ass 900000

total 2500000 2500000

net profit 600000 debt 1.5
increase in equity 600000 equity 1
capital employed 2.5

maximum amount of investment in project

investment in project 1200000

debt
720000

net proft 600000

less new investment 480000
dividend 120000
 900000
600000
1500000

1500000

equity
480000
NP

payout ratio 25%

normal dividend 265000

actual profit for 2003-04 1500000

payour ratio 40%
actual dividend 600000