Green gadgets inc. is trying to decide whether to cut its expected dividend for the next year from $8 per share to $5 per share in order to have more money to invest in new projects. It does not cut the dividend, green gadgets expected rate of growth in dividends is 5% per year and the price of their common stock will be $100 per share. However, if it cuts its dividend, the dicidend growth rate is expected to rise to 8 percent in the future. Assuming that the investors required rate of return for green gadgets stock does not change, what would you expect to happen to the price of its common stock if it cuts the dividend to $5? Should green gadgets cut its dividend?

B. Green gadgets inc. is trying to decide whether to cut its expected dividend for the next year from $8 per share to $5 per share in order to have more money to invest in new projects. It does not cut the dividend, green gadgets expected rate of growth in dividends is 5% per year and the price of their common stock will be $105 per share. However, if it cuts its dividend, the dicidend growth rate is expected to rise to 9 percent in the future. Assuming that the investors required rate of return for green gadgets stock does not change, what would you expect to happen to the price of its common stock if it cuts the dividend to $5? Should green gadgets cut its dividend?