Question

If the required return on equity capital of a firm is $14\%$ the current market price of the share is Rs.180 the dividend to be paid is Rs.20 and the market price a year hence will be ___________.

• A. Rs.185
• B. Rs.190
• C. Rs.195
• D. Rs.205
• E. Data insuficient

Answer 1

The correct option is A Rs.185

P${}_0$ = 1(D${}_I$ + P${}_I$)/(1 + K${}_e$)
By using the above formula
we get P${}_I$ = Rs.185.20.