Question

JRN Enterprises just announced that it plans to cut its dividend from $ 3.00$3.00 to $ 1.10$1.10 per share and use the extra funds to expand its operations. Prior to this​ announcement, JRN's dividends were expected to grow at 55​% per year and​ JRN's stock was trading at $ 24.00$24.00 per share. With the new​ expansion, JRN's dividends are expected to grow at 1010​% per year indefinitely. Assuming that​ JRN's risk is unchanged by the​ expansion, the value of a share of JRN after the announcement is closest​ to

Answer 1

The value of a share of JRN after the announcement is closest​ to $2

Step-by-step explanation:

• P = D1/(r-g)

24= 3 /(r-0.55)

r= 0,675

• now when Dividend is changed

Price = 1.1/(0,675 -0.1) = $ 1,91, approximately $2