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

Learn the key financial theories related to international finance, including purchasing power parity, interest rate parity, the international Fisher effect, and the unbiased forward rates condition.

Identify the factors that supply and demand currencies in the foreign exchange market.

Analyze international capital budgeting projects using net present value method in different currency approaches.

Understand the mechanisms and importance of forward trades in mitigating exchange rate risk.

---

Definitions:

Grantee

The recipient of a grant, right, or privilege, such as the person to whom property is transferred in a deed.

Third Party

A third party is any individual or entity that is not directly involved in a contract, agreement, or transaction but may be affected by it or have an interest in its outcome.

Real Estate

Property consisting of land and the buildings on it, along with its natural resources.

Consideration

In contract law, the benefit or value that is exchanged between parties in a contract, making it binding and legally enforceable.