Problem 11-09 The dividend-growth model, Do (1+g) v= k-g suggests that an increase in the dividend growth rate will increase the value of a stock. However, an increase in the growth may require an increase in retained earnings and a reduction in the current dividend. Thus, management may be faced with a dilemma: current dividends versus future growth. As of now, investors' required return is 9 percent. The current dividend is $1.3 a share and is expected to grow annually by 4 percent, so the current market price of the stock is $27.04. Management may make an investment that will increase the firm's growth rate to 8 percent, but the investment will require an increase in retained earnings, so the firm's dividend must be cut to $1.1 a share. Should management make the investment and reduce the dividend? Round your answer to the nearest cent. The value of the stock rises decrease the dividend. to $ so the management should make the investment and