Business Finance - Study Mode
[#536] Which of the following statements are true in the context of dilution of equity shares?
Correct Answer
(D) Dilution is the result of an increase in the total number of equity shares
[#537] Which of the following can be termed as the source of permanent working capital?
Correct Answer
(D) All of the above
[#538] 'Dividend is not relevant in determining the value of the company'. Who among the following held this opinion?
Correct Answer
(C) Modigliani Miller
[#539] Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace. This situation, in turn, makes it necessary for many firms to
Correct Answer
(C) Both A and B
[#540] In case, cost of capital is 10%, EPS Rs. 10, IRR 8% and retention ratio is 60%, then the value of equity share as per Gordon's Model will be
Correct Answer
(D) Rs. 77
Explanation
Solution: Gordon’s Dividend Capitalization Model is used to calculate the value of an equity share using the formula: P = E(1 – b) / (k – br) Where: P = Price of the share (Value of equity share) E = Earnings per share = Rs. 10 b = Retention ratio = 60% = 0.6 k = Cost of capital = 10% = 0.10 r = Internal rate of return = 8% = 0.08 Substitute the values into the formula: P = 10(1 – 0.6) / (0.10 – 0.6 × 0.08) P = 10(0.4) / (0.10 – 0.048) P = 4 / 0.052 P ≈ Rs. 76.92 ≈ Rs. 77 (rounded) Therefore, the correct value of the equity share as per Gordon's Model is Rs. 77.