Strategic Financial Management – Gordon’s Dividend Model

30 Apr

Strategic Financial Management

1. From the following information of the two projects calculate the net present value and suggest which of the two projects should be accepted assuming a discount rate of 10%.


 Project XProject Y
Initial Investment₹ 25,000₹ 30,000
Estimated Life5 years5 years
Scrap Value₹ 1,500₹ 2,000

The profits before depreciation and after taxes are as follows:

Project X (₹)5,00010,00012,0007,0003,000
Project Y (₹)20,00010,0007,0005,0002,000

2. Nisha has completed her MBA and has joined a company which was going to raise fund from long term sources such as Debt and Equity. Nisha was asked by her manager to prepare a report on which could be a better source of funding for the firm mentioning the advantages of each to be presented to the Management so that it is easy for them to take the decision. Help her to prepare the report.

3 The following information is given for Delta Ltd.

Earnings per share₹ 15
Dividend per share₹ 5
Cost of capital15%
Internal Rate of Return on Investment20%
Retention Ratio65%

Calculate the market price per share using

a. Gordon’s Dividend Model

b. Walter’s Dividend Model

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