Page 204 - DMGT409Basic Financial Management

Unit 13: Theory and Forms of Dividend

Therefore, when R>K, price share will be maximum at 0% payout ratio. Price per share decreases Notes
as and when payout ratio is increased.
II when R<K (10%<12%)
At 0% payout ratio
0 + 0.10/0.12( 8 - 0)
P=
. 0 12
= ` 55.55
At 25% payout ratio
2 + 0.10/0.12( 8 - 2)
P=
. 0 12
= ` 58.33
At 50% payout ratio

+
4 0.10/0.12(8-4)
P=
0.12
= ` 61.11
At 75% payout ratio
6 0.10/0.12(8-6)
+
P=
0.12
= ` 63.88

At 100% payout ratio
+
8 0.10/0.12(8-8)
P=
0.12
= ` 66.66
Therefore, when R<K, price per will be maximum at 100% payout ratio. Price per share increases
as and when the payout ratio is increased.

III when R=K (12%=12%)
At 0% payout ratio
+
0 0.12/0.12(8-0)
P=
0.12
= ` 66.66
At 25% payout ratio
+
2 0.12/0.12(8-2)
P=
0.12
= ` 66.66

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