XYZ Ltd. has 25,000 outstanding shares at current market price of ₹ 100. It belongs to a risk class with capitalisation rate of 20%. The company expects to earn a net profit of ₹ 5,00,000 during a year. What will be the

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2017
XYZ Ltd. has 25,000 outstanding shares at current market price of ₹ 100. It belongs to a risk class with capitalisation rate of 20%. The company expects to earn a net profit of ₹ 5,00,000 during a year. What will be the price of share if dividend is not paid ?

Answer & Explanation:

When dividend is not paid Given: Current market price (P 0 ) = ₹ 100 Capitalization rate = 20% Dividend per share = 0 Market price of share at the end of the year (P 1 ) P 0 = D 1 + P 1 ⁄ 1 + K e 100 = (0 + P 1 )/(1 + 0.20) P 1 = ₹ 120

Topics: Equity Valuation

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