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

Using Modigliani-Miller Dividend Irrelevancy Model P 0 = (P 1 + D 1 ) / (1 + K e ) Where, P 0 is prevailing market price of the share P 1 is the market price of the share at the end of period one D 1 is the dividend to be received at the end of period one K e is the capitalization rate Given: P 0 = ₹100, K e = 20% or 0.20, D 1 = 0 (since dividend is not paid) 100 = (P 1 + 0) / (1 + 0.20) 100 = P 1 / 1.20 P 1 = 100 * 1.20 P 1 = ₹120