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Compute the value of share

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Reference no: EM132925220

Question - The solution to this question should be submitted as a word document.

a. Describe determinants of a share value in Walter's model and Gordon model in relation to dividend decisions.

b. You have been provided with following information for the financial year ended 31st December 2020.

Earnings per share for the year ended 31st December 2020 is Ksh 10 per share

The company has dividend pay-out of 60%

The cost of equity is 14%

The return on equity is 20%

Required -

i) Compute the value of share on 1st January 2019 both under Gordon and Walter's model based on information provided.

ii) Explain why the two value computed in (i) are different.

iii) Critic the theory on "information content of dividend".

Reference no: EM132925220

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