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

Question

Karen Mcmillan

Business

28 May, 13:01

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

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Mila Cowan · Answer 1

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

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