Calculate the price of the stock after the announcement

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Question - The recent trade war has hit the Orange Company severely. Management announced that previous plans to expand its operations would be cancelled. Orange just paid a dividend of $2.50 but announced that next year's dividend would be cut to $2 per share, and only grow at a rate of 2% per year forever.

The market price of the stock was $20 before the announcement. The stock's expected return is 15%.

Calculate the price of the stock after the announcement based on the constant dividend growth model.

Reference no: EM132947888

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