Following details are related to H Ltd.: EPS 3.00 Return on investment 20% Cost of equity 15% As per Walter's Model, what would be the maximum and…

(b) In this question, since r>K e , as per the Walter's Model, the price will be maximum when the company retains all the earnings. Detailed calculations are as follows: (i) Maximum Price when company retains all the earnings i.e. D = 0 P 0 = D+ r K e (E-D) K e = 0+( 0.20 0.15 )(3-0) 0.15 = (1.333)x 3 0.15 = 4 0.15 = 26.67 (ii) Minimum Price is when company distributes all its earnings P 0 = 3+ 0.20 0.15 (3-3) 0.15 = 3+0 0.15 = 3 0.15 = 20