Problem:
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's stock was trading at $25.00 per share. With the new expansion, JRN's dividends are expected to grow at 8% per year indefinitely.
Required:
Question: Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to:
A) $25
B) $15
C) $31.25
D) $27.50
Note: Show supporting computations in good form.