In the past SunnyFlax paid out all of its earnings as dividends. When the stock

Question

In the past SunnyFlax paid out all of its earnings as dividends. When the stock market opened for trading today, SunnyFlax share price was $38 and earnings for the year ending today ending today are $3/ share. At the end of the day and after paying their $3 dividends, Sunnyflax surprises investors by announcing that they will cut its dividend payout in the future years from 100% to 66.67% and reinvested the retained funds. The rate of return on invested capital is expected to be 12%. If the reinvestment does not affect Sunnyflax' equity cost of capital, what is the expected share price as a consequence of this decision?

Which of the following risk-free, zero-coupon bonds could be bought for the lowest price?
Question 1 options:
A)
one with a face value of $1000, a YTM of 4.8%, and 5 years to maturity
B)
one with a face value of $1000, a YTM of 3.2%, and 8 years to maturity
C)
one with a face value of $1000, a YTM of 6.8%, and 10 years to maturity
D)
one with a face value of $1000, a YTM of 5.9%, and 20 years to maturity

3)The Sisyphean Company's common stock is currently trading for $25.00 per share. The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Sisyphean Company's earnings is closest to:


A) 8%

B) 2%

C) 4%

D) 6%

Please show step by step solution :)

Explanation / Answer

The Sisyphean Company's common stock is currently trading for $25.00 per share. The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Sisyphean Company's earnings is closest to: We have P0=$25, d1=$2.50, Ks=14% find g

We have P0=D1/(Ks-g) ie

g = Ks - D1/P0 = 14%-2.50/25 = 4%

C) 4%

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