1. "Select" is Rise/Decline

2. "Select" is Should/Should not

Problem 11-09 The dividend-growth model, V= D.(1 + g) -9 suggests that an increase in the dividend growth rate will increase the value of a stock. However, an increase in the growth may require an increase in retained earnings and a reduction in the current dividend. Thus, management may be faced with a dilemma: current dividends versus future growth. As of now, investors' required return is 9 percent. The current dividend is $1 a share and is expected to grow annually by 4 percent, so the current market price of the stock is $20.8. Management may make an investment that will increase the firm's growth rate to 8 percent, but the investment will require an increase in retained earnings, so the firm's dividend must be cut to $0.8 a share. Should management make the investment and reduce the dividend? Round your answer to the nearest cent. The value of the stock -Select to $ so the management -Select make the investment and decrease the dividend