The equity shares of a publicly traded company are priced at Rs. 600 with P/E (Price to Earnings) ratio of 20. The company announces a dividend of Rs. 12 per shares. The shareholders of the company expect the dividend to grow at a rate of 5% every year, and the cost of equity for the company is 16%. According to the dividend relevance approach suggested by Walter and Gordon, what would be the impact of dividend announcement on the market price of the shares of the company if required rate of return for investors is (i) 10%, (ii) 15% and (iii) 20%

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The equity shares of a publicly traded company are priced at Rs. 600 with P/E
(Price to Earnings) ratio of 20. The company announces a dividend of Rs. 12 per
shares. The shareholders of the company expect the dividend to grow at a rate of
5% every year, and the cost of equity for the company is 16%. According to the
dividend relevance approach suggested by Walter and Gordon, what would be the
impact of dividend announcement on the market price of the shares of the company
if required rate of return for investors is (i) 10%, (ii) 15% and (iii) 20%

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