Assuming TCL's Opportunity Cost of Capital (Ke) is 15%, compute the price of the share today using both (a) Dividend Growth Model and (b) Walter's…

Book Value = 400 ROE (Re) = 12% Payout Ratio = 1-0.70 = 0.30 EPS = Book Value × ROE = 400 × 12% = 48 Dividend per Share = 48 × 30% = 14.40 Growth Rate = 12% × 0.70 = 8.4% Price of Share as per Dividend Growth Model = D 1 / (K e - g) = 14.40 / (0.15 – 0.084) = 14.40/0.066 = 218.18 Alternatively, this question can be solved by considering dividend with Growth. Accordingly, value will be computed as follows: = 14.40 (1.084) / (0.15 – 0.084) = 15.61/0.066 = 236.52 Price of Share using Walter Model V c = [D + R a (E-D)/R c ] / R c Where, V c = Market Price of the ordinary share of the company. R a = Return on internal retention i.e. the rate company earns on retained profits. R c = Capitalisation rate i.e. the rate expected by investors by way of return from particular category of shares. E = Earnings per share. D = Dividend per share. V c = 14.40 + [0.12(48.00-14.40)/0.15] / 0.15 V c = 14.40 + [4.032/0.15] / 0.15 V c = 14.40 + 26.88 / 0.15 V c = 41.28 / 0.15 = 275.20 Alternatively, this question can be solved by considering dividend with Growth. Accordingly, value will be computed as follows: D = 14.40 (1+0.084) = 15.61 E = 48 (1+0.084) = 52.03 V c = 15.61 + [0.12(52.03-15.61)/0.15] / 0.15 V c = 15.61 + [4.3692/0.15] / 0.15 V c = 15.61 + 29.128 / 0.15 V c = 44.738 / 0.15 = 298.33