Sunnyfax Publishing Pays Out All Its Earnings and Has a Share

question 30

Multiple Choice

Sunnyfax Publishing pays out all its earnings and has a share price of $38. 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 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)$50.00
• B)$40.00
• C)$33.33
• D)$60.00

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Definitions:

Impaired Spontaneous Ventilation

A condition where the natural ability to breathe independently and maintain adequate gas exchange is diminished or compromised.

Morphine Sulfate

An opioid medication used for the relief of moderate to severe pain by acting directly on the central nervous system.

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A decrease in the rate and depth of breathing, leading to inadequate ventilation and oxygenation of the blood.

Pulmonary

Relating to or affecting the lungs.