Sunnyfax Publishing pays out all its earnings and has a share price of $ 35.00 . In order to expand, Sunnyfax Publishing decides to cut its dividend from $3.00 to $2.00 per share and reinvest the retained funds. Once the funds are reinvested, they are expected to grow at a rate of 11 %. If the reinvestment does not affect Sunnyfax's equity cost of capital, what is the expected share price as a consequence of this decision?

$40.80

Explanation:

In this question , we are asked to calculate the expected share price as a result of some decisions taken.

We proceed as follows;

growth rate = b x r = (1 x 0.11/3) = 3.67%

New Dividend = $2

cost of equity = 3/35= 8.57%

Price of the stock = New Dividend/( cost of equity - growth rate)

= 2/(0.0857 -0.0367)

= $40.80

answer; i believe the answer is 40,600,000;

one of the appeals of a sole proprietorship is that business expenses are kept separate from your personal income tax return