XYZ Ltd. has the following data: Earnings per share (EPS):10 Return on equity (ROE): 18% Capitalisation rate (Ke): 15% Dividend payout ratio: 60%…

CA Intermediate · Financial Management and Strategic Management · MTP · September 2025
XYZ Ltd. has the following data: Earnings per share (EPS):10 Return on equity (ROE): 18% Capitalisation rate (Ke): 15% Dividend payout ratio: 60% Based on Gordon's Model, what would be the likely effect on the market price per share if the company increases its dividend payout ratio to 80%, assuming all other factors remain constant?
(A) Market price per share will increase
(B) Market price per share will decrease
(C) Market price per share will remain unchanged
(D) Cannot be determined due to insufficient information

Suggested Answer and Working Notes:

Correct Answer: Option (B)

Market price per share will decrease

Topics: Part-A: Financial Management

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