Shares of the sugarcooky corp

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Randal Flapjack is a retired short-order cook living on a fixed income in the state of Utopia where all financial markets are perfectly efficient. Randal has 20,000 shares of the Sugarcooky Corp.,which pays an annualized dividend of $1.00 per share. Sugarcooky sells at a P/E of 10, has maintained a payout ratio of 50% for many years, and has not grown in some time. Management has recently announced that it will reduce Sugarcooky's payout ratio to 25% but expects earnings to grow at 5% from now on. What will be the value of his remaining shares (assuming that he sells off shares to maintain his current income) at the end of a year if the P/E remains the same? Is his investment growing?

Reference no: EM131041178

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