Mr. Karan, sorry here R=IRR. The book I’m referring to had printed it as ROI. IRR = 0 NPV while, Ke can have 0 NPV, +ve NPV or Negative NPV. (There can be a negative IRR as well if there are unconventional Cashflows). Walter assumed ‘r’ at different rates and also assumed Ke t different to simulate in his model to see if these values will increase or decrease in the share price along with increase decrease in dividend payout ratio. He found out both of them are inverselyrelated.
When R>Ke, With increase in dividend payout ratio, the market price of share is falling.
When R<Ke, With increase in dividend payout ratio, the market price of share is increasing.
When R=Ke, The market price of share is constant with increasing dividend payouts.
The problem here, it is assumed that this model is used for only all equity companies which has no debt.
The next problem is IRR is constant.