Case Study.
X Ltd. has 10 lakhs equity shares outstanding at the beginning of the accounting year 2016.
The appropriate P/E ratio for the industry in which D Ltd. is 8.35. The earnings per share is Rs.
15 in the last twelve months and current P/E ratio for the company is 10. The EPS is expected
to be Rs. 20 at the end of the accounting year and the company has an investment budget of
Rs. 4 crores. Based on M-M approach calculate the market price of share of the
company.
(a) When the Board of Directors of the company has recommended Rs. 8 per share as
dividend which is (i) declared, and (ii) not declared.
(b) How many new shares are to be issued by the company at the end of the accounting year
when (i) the above dividends are distributed, and (ii) dividends are not distributed.
(c) Show that the market value of the shares of the company at the end of the accounting
year will remain the same whether dividends are distributed or not declared.
Question 1. Price per share at the end of the year when dividend is not declared (i.e. D1 = 0):
Select one:
a. 168
b. 160
c. 165
d. 163
