In the past sunnyfax publishing paid out all its earnings, Ask an Expert

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In the past, Sunnyfax publishing paid out all its earnings as dividends. When the stock market opened for trading today, Sunnyfax's share price was $38 and earning 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 by 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?

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Category:- Basic Finance
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