JRN Enterprises Just Announced That It Plans to Cut Its

question 6

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 shares were 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)$15.00
• B)$31.25
• C)$27.50
• D)$25.00

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Definitions:

Economic Efficiency

A situation where all resources are allocated in a way that maximizes the net benefit to society.

Positive Externalities

Benefits experienced by third parties or the society at large as a result of an economic activity, without them directly paying for it.

Economic Activity

Actions that involve the production, distribution, and consumption of goods and services within an economy.

Government Enforcement

Refers to the actions and measures taken by government authorities to ensure compliance with laws, regulations, and policies.