Dubai Metro’s stock price was at $100 per share when it announced that it will cut its dividends from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4% rate, but with the expansion, dividends are now expected to grow at 7%. How do you think Dubai Metro’s stock price will react to the announcement?

Use the given info along with the constant-growth model to determine the discount rate the market is using to derive the $100 share price.

Then with that discount rate in hand use the constant-growth ("Gordon") model again to re-price the stock based on the new expectations for dividends and growth.

Here's where you take over for the wrap-up.