The dividend-growth model, 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 10 percent. The
current dividend is $0.9 a share and is expected to grow annually
by 5 percent, so the current...