Wendy & Jack Winter are retired. Most of their savings are invested in 10,000 sh

Question

Wendy & Jack Winter are retired. Most of their savings are invested in 10,000 shares of Ajax Company. Ajax sells at $10.00 a share and pays a dividend of $.50 (50 cents) per share. Wendy and Jack depend on this dividend to supplement their retirement income. This year Ajax discontinued the dividend, but began to grow at 5 percent (5%) per year because of the additional retained earnings. How can the Winter family maintain their income and their position in Ajax Company? Assume there are no costs to buying and selling securities.

Explanation / Answer

They were generating an annual dividend of 10,000 shares $0.50 or $5,000 before Ajax discontinued the dividend.

After one year of 5% growth, Ajax

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