Vista Limited's retained earnings per share for the year ending 31.03.2023 being 40% is 3.60 per share. Company is foreseeing a growth rate of 10%…

CA Intermediate · Financial Management and Strategic Management · MTP · May 2026
Vista Limited's retained earnings per share for the year ending 31.03.2023 being 40% is 3.60 per share. Company is foreseeing a growth rate of 10% per annum in the next two years. After that the growth rate is expected to stabilize at 8% per annum. Company will maintain its existing pay-out ratio. If the investor's required rate of return is 15%, CALCULATE the intrinsic value per share as of date using Dividend Discount model.

Suggested Answer and Working Notes:

As per Dividend discount model, the price of share is calculated as follows: Retained earning per share = 3.60 Dividend per share, D₀ = 3.60 / 40% × 60% = 5.40 P = D₁ / (1+Kₑ) + D₂ / (1+Kₑ)² + D₃ / (Kₑ-g) × 1 / (1+Kₑ)² Where, P = Price per share Kₑ = Required rate of return on equity g = Growth rate P = 5.4 × 1.1 / (1+0.15) +5.94 × 1.1 / (1+0.15)² +6.534 × 1.08 / (0.15-0.08) × 1 / (1+0.15)² P= 5.17 + 4.94 + 76.23 = 86.33 Intrinsic value of share is 86.33

Topics: Part-A: Financial Management

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