JRN Enterprises Just Announced That It Plans to Cut Its

question 51

Multiple Choice

JRN Enterprises just announced that it plans to cut its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations.Prior to this announcement,JRN's dividends were expected to grow at 4% per year and JRN's stock was trading at $25.00 per share.With the new expansion,JRN's dividends are expected to grow at 8% 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:

• A)$25.00.
• B)$15.00.
• C)$31.25.
• D)$27.50.

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Definitions:

Excess Demand

A market condition where the quantity demanded of a good exceeds the quantity supplied at a given price, often leading to price increases.

Supply

The total quantity of a good or service that the market can offer.

Demand

The amount of a product or service that consumers are willing and able to purchase at various prices during a specified period.

Equilibrium

A situation where the amount of goods available in the market matches what consumers want to buy, leading to stable prices and consistent availability.