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Oswego Plumbing Works (ticker: OPW) just announced that it will cut next year's dividend,
D1,
from
$2.00
to
$1.40
per share and the firm will use the extra funds to expand operations. Prior to this announcement, OPW's dividends were expected to grow at
3%
per year and OPW's common stock was trading at a price of
$25.00
/share. With the new expansion, OPW's dividends are expected to grow at
6%
per year indefinitely.
Assuming the overall risk of the firm is unchanged by this expansion, the value of one share of OPW after the announcement is closest to
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