The following information is available in respect of the rate of return on investment (r), the capitalisation rate (Ke) and earnings per share (E) of X Ltd. : r = 12%, E = 20. Determine the value of shares, assuming the
CS Executive · Financial and Strategic Management · PYQS · December 2018
The following information is available in respect of the rate of return on investment (r), the capitalisation rate (Ke) and earnings per share (E) of X Ltd. : r = 12%, E = 20. Determine the value of shares, assuming the following: D/P ratio = 10, Retention Ratio = 90, Ke = 20%
Answer & Explanation:
Answer 2(e) Value of the share = P Retention ratio = b Earnings per share = E Return on investment = r Capitalisation rate = Ke P = E(1-b) / (ke-br) = 20(1-0.90) / (0.20-(0.90 x 0.12)) = ₹21.74
Topics: Financial Management
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