The dividend growth model suggests that an increase in the dividend growth rate will increase the value of the stock.

V=kgD0(1+g) 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 12 percent. The current dividend is $1.1 a share and is expected to grow annually by 5 percent, so the current market price of the stock is $16.5. Management may make an investment that will increase the firm's growth rate to 9 percent, but the investment will require an increase in retained earnings, so the firm's dividend must be cut to $0.6 a share. Should management make the investment and reduce the dividend? Round your answer to the nearest cent. The value of the stock - Select o to $ , so the management make the investment and decrease the dividend