What is expected share price as consequence of decision

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Reference no: EM13879380

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

A) $26.34

B) $51.35

C) $53.40

D) $80.11

Reference no: EM13879380

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