The correct answer is: A. ke = r
Walter’s model suggests for 100% DP Ratio when the cost of equity (ke) is equal to the rate of return (r). This is because when ke = r, the company is earning a return on its investment that is equal to the cost of that investment. This means that the company is not making any profit or loss on its investment, and the DP Ratio will be 100%.
Option B is incorrect because if ke < r, the company is earning a return on its investment that is less than the cost of that investment. This means that the company is making a loss on its investment, and the DP Ratio will be less than 100%.
Option C is incorrect because if ke > r, the company is earning a return on its investment that is greater than the cost of that investment. This means that the company is making a profit on its investment, and the DP Ratio will be greater than 100%.
Option D is incorrect because if ke = 0, the company is not earning any return on its investment. This means that the company is not making a profit or loss on its investment, and the DP Ratio will be 0%.