Question
(Measuring growth) Green Gadgets Inc. is trying to decide whether to cut its expected dividend for next year from $ 8per share to ?$5 per
(Measuring growth) Green Gadgets Inc. is trying to decide whether to cut its expected dividend for next year from $ 8per share to ?$5 per share in order to have more money to invest in new projects. If it does not cut the? dividend, Green? Gadgets' expected rate of growth in dividends is 5 percent per year and the price of their common stock will be ?$100 per share. ? However, if it cuts its? dividend, the dividend growth rate is expected to rise to 8 percent in the future. Assuming that the? investor's required rate of return for Green? Gadgets' stock does not? change, what would you expect to happen to the price of its common stock if it cuts the dividend to ?$5?? Should Green Gadgets cut its? dividend? Support your answer as best you can.
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