Walter's Model: Professor James E. Walter argues that the choice of dividend policies almost always affects the value of the enterprise. His model shows clearly the importance of the relationship between the firms internal rate of return (r) and its cost of capital (k) in determining the dividend policy that will maximize the wealth of shareholders. The formula to determine the market value of share as suggested by Prof. Walter is as under :P = (D/Ke) + [r(E - D)/Ke] / Kewhere, P = Market Price Per ShareD = Dividend Per Sharer = Internal Rate Of ReturnE = Earnings Per ShareKe = Cost Of Equity Capital or Capitalization RateTherefore,P = (1. 6/0. 15) + [0. 18(4-1. 6)/0. 15] / 0. 15? P = 10. 67 + 19. 2? P = Rs. 29. 8729. 87 Rupees will be the price per share as per Walter model if the payout ratio is 40%. Thus, option 1 is the correct answer. D = 4 x 0. 40 = 1. 6