JRN Enterprises just surprised the market with an

unexpected announcement that it plans to cut its next

dividend from $$3\mathrm{.}00$ to $$1\mathrm{.}50$ per share and then use the

extra funds to expand its operations. Prior to this

announcement, JRN$\text{'}$s next dividend was expected to be

$$3\mathrm{.}00$ per share and the dividends were expected to grow

indefinitely at $4\%$ per year each year thereafter. Prior to

the announcement JRN$\text{'}$s stock was trading at $$25\mathrm{.}50$ per

share. The next dividend is $1$ year away.

Assume that JRN does not use share repurchases and the

management chooses to return money to shareholders

only through regular annual dividends. With the new

expansion, JRN$\text{'}$s dividends are now expected to grow at

$8\%$ per year each year indefinitely after the $$1\mathrm{.}50$

dividend next period. Assuming that JRN$\text{'}$s risk is

unchanged by the expansion $($i$.$e$.,$ the discount rate is

assumed not to change with the expansion$),$ a reasonable

estimate of the value of a share of JRN after the

announcement is closest to

$$25\mathrm{.}50$

$$12\mathrm{.}75$

$$38\mathrm{.}63$

$$19\mathrm{.}32$

$$21\mathrm{.}23$