In the past sunnyflax paid out all of its earnings as

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Reference no: EM13618659

In the past SunnyFlax paid out all of its earnings as dividends. When the stock market opened for trading today, SunnyFlax share price was $38 and earnings for the year ending today ending today are $3/ share. At the end of the day and after paying their $3 dividends, Sunnyflax surprises investors by announcing that they will cut its dividend payout in the future years from 100% to 66.67% and reinvested the retained funds. The rate of return on invested capital is expected to be 12%. If the reinvestment does not affect Sunnyflax' equity cost of capital, what is the expected share price as a consequence of this decision?

Reference no: EM13618659

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