You are being appointed as a Management consultant by Gramin Ltd., and the following information is provided to you, by the management of Gramin Ltd. Gramin Ltd. has been incorporated and commenced the business before on

Working Notes: Equity Capital = ₹20,00,000 Face Value per share = ₹100 Number of shares = ₹20,00,000 / ₹100 = 20,000 shares Earnings for the year = ₹2,00,000 Dividend paid = ₹1,50,000 Dividend per share (DPS) = ₹1,50,000 / 20,000 = ₹7.50 Earnings per share (EPS) = ₹2,00,000 / 20,000 = ₹10 Dividend Payout Ratio = DPS / EPS = ₹7.50 / ₹10 = 0.75 or 75% Retention Ratio = 1 - 0.75 = 0.25 or 25% Price-Earnings Ratio (P/E) = 12.50 Cost of Equity (Ke) = 1 / P/E = 1 / 12.50 = 0.08 or 8% Rate of Return on Investment (r) = Earnings / Equity Capital = ₹2,00,000 / ₹20,00,000 = 0.10 or 10% (i) Price per share based on present dividend pay-out policy (Walter's Model): Walter's Model Formula: P = [DPS + r/Ke(EPS - DPS)] / Ke P = [₹7.50 + 0.10/0.08 (₹10 - ₹7.50)] / 0.08 P = [₹7.50 + 1.25 (₹2.50)] / 0.08 P = [₹7.50 + ₹3.125] / 0.08 P = ₹10.625 / 0.08 P = ₹132.81