The dividend$-$growth model, 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$$ required return is $14$ percent. The current dividend is $$1\mathrm{.}4$ a share and is expected to grow annually by $5$ percent, so the current market price of the stock is $$16\mathrm{.}33.$ Management may make an investment that will increase the firm$$s growth rate to $8$ percent, but the investment will require an increase in retained earnings, so the firm$$s dividend must be cut to $$1\mathrm{.}2$ 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.The dividend$-$growth model,

$V=\frac{D_0(1+g)}{k-g}$

The value of the stock $-$Select$-$ to $$,$ so the management $-$Select$-$ make the investment and decrease the dividend.