Required rate of return for green gadgets stock

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Reference no: EM131568849

Andy's Trinkets Inc. is trying to decide whether to cut its expected dividend for next year from $ 7 per share to $44 per share in order to have more money to invest in new projects. If it does not cut the dividend, Green Gadgets' expected rate of growth in dividends is 44 percent per year and the price of their common stock will be $105 per share. However, if it cuts its dividend, the dividend growth rate is expected to rise to 77 percent in the future. Assuming that the investor's required rate of return for Andy's Trinkets Inc. stock does not change, what would you expect to happen to the price of its common stock if it cuts the dividend to $44?

Should Andy's Trinkets cut its dividend? Support your answer as best you can.

What is the investor's required rate of return for Green Gadgets' stock?

Price of stock when dividend is cut?

Reference no: EM131568849

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