ABC Ltd, a newly incorporated company, commenced its operations in 2024 by issuing equity shares at face value. The company follows a pure equity…

ABC Ltd, a newly incorporated company, commenced its operations in 2024 by issuing equity shares at face value. The company follows a pure equity capital structure and has 10,000 equity shares outstanding. During its first two years of operations, the company demonstrated stable financial performance. It earned a profit of 1,00,000 in 2024 and - 1,04,000 in 2025, reflecting a consistent annual growth rate of 4%. The company's cost of equity (Ke) is estimated at 8%. Based on the Gordon Growth Model, the market price per share at the end of 2025 has been valued at 162.24. Although the company has been following a traditional dividend payout policy, the management is now concerned about whether this policy maximizes shareholders' wealth. Specifically, the Board of Directors wants to assess whether the current dividend payout ratio is appropriate in light of the company's growth prospects and return on retained earnings. To support this decision, the finance team has been instructed to evaluate the firm's dividend policy using both the Gordon Growth Model and Walter's Model. The objective is to determine the impact of the existing and alternative dividend payout strategies on the company's market price per share, growth rate, capital employed, and overall shareholder wealth maximization. You are required to answer the following requirements: