A company is expected to pay an annual dividend of ₹12.00 per share next year (D1). If the company's dividends are projected to grow at a perpetual constant rate of 6.0% p.a. and the required rate of return (Cost of Equity Ke) is 14.0%, what is the Intrinsic Value per share (P0)?

[ A ]₹85.71 per share [ D1 / (Ke + g) = ₹12.00 / 0.20 ]

[ B ]₹200.00 per share [ D1 / g = ₹12.00 / 0.06 ]

[ C ]₹120.00 per share

[ D ]₹150.00 per share [ D1 / (Ke - g) = ₹12.00 / (0.14 - 0.06) = ₹12.00 / 0.08 ][ CORRECT ]

Takeaway

Option D is correct: ₹150.00 per share [ D1 / (Ke - g) = ₹12.00 / (0.14 - 0.06) = ₹12.00 / 0.08 ]

Derivation

The Gordon Growth Model prices a share as the present value of an infinite stream of dividends growing at a constant rate, and the formula compresses that infinite sum into a single division: P0 = D1 / (Ke − g). Here D1 = ₹12.00, Ke = 14.0%, and g = 6.0%, so the denominator is the spread between required return and growth: 0.14 − 0.06 = 0.08. Intrinsic Value = ₹12.00 / 0.08 = ₹150.00 per share. That spread has to be positive and reasonably sized for the model to produce a sensible number — as growth approaches the required return, the denominator shrinks toward zero and the implied valuation explodes upward, which is exactly why the model breaks down for very high-growth companies where g is close to or exceeds Ke.

Why the others fail

A — ₹85.71 per share [ D1 / (Ke + g) = ₹12.00 / 0.20 ]

Adds the growth rate to the required return instead of subtracting it, shrinking the true 8% spread's effect and producing a far lower valuation than ₹150.

B — ₹200.00 per share [ D1 / g = ₹12.00 / 0.06 ]

Divides the dividend by the growth rate alone, ignoring the required rate of return entirely, which produces a valuation with no connection to Ke.

C — ₹120.00 per share

Simply multiplies the dividend by an arbitrary factor of ten rather than applying the Gordon Growth denominator of Ke minus g to discount the dividend stream.