Question: Tyrion L.'s Gadgets Inc. is trying to decide whether to cut its expected dividends for next year from $8 per share to $5 per share

Tyrion L.'s Gadgets Inc. is trying to decide whether to cut its expected dividends for next year from $8 per share to $5 per share in order to have more money to invest in new projects. If it does not cut the dividend, the firm's expected rate of growth in dividends will be 5 percent per year, and the price of its common stock will be $100 per share. However, if it cuts the dividend, the dividend growth rate is expected to rise to 8 percent in the future. Assuming that the investor's required rate of return does not change, what would you expect to happen to the price of Tyrion L.'s Gadgets' common stock if the firm cuts the dividend to $5? Should Tyrion L.'s Gadgets cut its dividend? Support your answer as best as you can.

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