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JRN Enterprises just announced that it plans to cut its next-year dividend, D1, from $2.25 to $1.30 per share and use the extra funds to
JRN Enterprises just announced that it plans to cut its next-year dividend,
D1,
from
$2.25
to
$1.30
per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow at
3%
per year and JRN's stock was trading at
$25.00
per share. With the new expansion, JRN's dividends are expected to grow at
6%
per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to:
A.
$14.44
B.
$37.50
C.
$25.00
D.
$21.67
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