8. A company has a total investment of `5,00,000 in assets and 50,000 outstanding ordinary shares at `10 per share (par value). It earns a rate of 15% of its investments and has a policy of retaining 50% of the earnings. If the appropriate discounting rate of the firm is 10%, determine the price of its shares using Gordon’s Model. What shall happen to the price of the share, if the company has a payout of 80% or 20%?

[C.S. Final Dec. 2003]

[Ans. (i) 50% payout, P = 30, (ii) 80% payout, P = `17.14,

(iii) 20% payout, P = ` (–)15]