Question

2. The following information is given below about Ganesh Ltd:

EPS Rs.12. rate of return required by
shareholders 20%. Assuming that Gorden's valuation model holds, what rate of return should be earned on investment to ensure that the market price is Rs. 60 when the dividend payout ratio is 20%?​

Answer 1

Answer:

hiiiiiiiiiiiiiiiiiiii nice to meet you

Answer 2

Answer:

The rate of return should be earned on investment to ensure that the market price is Rs. 60 when the dividend payout ratio is 20 will be 16 percentage.

Explanation:

• Gorden's Valuation Model

           $P = \frac{D} {R-G}$

Here, P = Fair value of the stock

         D = Current year Dividend

         R = Rate of return required by Shareholders/Cost of Equity

         G = Rate of Growth/return on Investment

Now,

• P = 60
• D = 20% of EPS = 20% of 12 = Rs 2.4
• R = 20%
• G = ?

Putting all the values in the Gorden's Valuation Model we get,

   ⇒      $60 =\frac{2.4}{0.20-G}$

   ⇒     60 x (0.20 - G) = 2.4

   ⇒     12 - 60 G = 2.4

   ⇒      60G = 9.6

   ⇒        G = 16%

#SPJ3