What should happen to the value of Piotr common shares

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Question - Piotr Co. recently paid a dividend of $2.25 on its common shares. Prior to new information becoming available today, Piotr's dividends were expected to grow at a constant rate of 2% and its investors required a 15% return on Piotr's common shares.

Today, Piotr's CEO announced that the next dividend (to be paid next year) would be only $1.90. This announcement, along with other market conditions, caused investors to reassess Piotr's risk, resulting in an increase in their required return to 17% and a reduction of the expected future growth rate of dividends to 1.1%. What should happen to the value of Piotr's common shares following this announcement?

a) A decline of $2.96 per share

b) A decline of $4.12 per share

c) A decline of $5.36 per share

d) A decline of $5.70 per share

Reference no: EM132974860

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