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How has spriggy required return changed

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Reference no: EM132596986

Every year, Spriggy Sparklers pays a dividend of $3.25. Spriggy just announced that next year's dividend is expected to be smaller due to temporary shortages to shift business structure. However, after this one time interruption, they expect dividends to return to their normal level of $3.25.

Question 1: In reaction to this news, the stock price increases from $55.80 to $60.11. Assuming that the stock is priced correctly using the dividend discount model, and that dividends return to a constant $3.25 in the future, how has Spriggy's required return changed with this announcement?

Reference no: EM132596986

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