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Question 4 (15 marks) Green Gadgets Ltd is trying to decide whether to cut its expected dividends for next year from $8 per share to
Question 4 (15 marks) Green Gadgets Ltd is trying to decide whether to cut its expected dividends for next year from $8 per 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% per year and the price of its ordinary shares will be $100 per share. However, if they cut their dividend, the dividend growth rate is expected to rise to 8% in the future. Assuming the investor's required rate of return for Green Gadgets' shares does not change, what would you expect to happen to the price of its ordinary shares if Green Gadgets cuts the dividend to $5? Should Green Gadgets cut its dividend? Support your answer as best as you can
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