Punggol Bakery is expected to generate earnings per share ("EPS") of S$4.80 in the upcoming year. At present, the company has not identified any profitable investment opportunities so it decides to pay out all earnings as dividends. Based on this analysis, Punggol Bakery is currently trading at S$25.55 per share. However, a new Chief Financial Officer is hired and they can source profitable opportunities for the company to pursue. They believe that another bakery can be set-up in Sengkang which will deliver a return of 14.5%. However, in order to fund this Punggol Bakery will have to retain earnings of 40%. 

By deciding to invest in the new bakery, what effect would this have on Punggol Bakery's share price?

Answer rating: 100% (QA)

By deciding to invest in the new bakery Punggol Bakery will retain 40 of its earnings instead of pay... View the full answer