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Middling Growth Co. pays annual dividends on its common shares, and has just paid this year's dividend. It has just announced that it suffered a short-term earnings setback. It has been paying dividends that equal 50% of the previous year's earnings, and its earnings have been growing at 10% per year. This year's earnings were expected to be $10/share, and next year's dividend, to be received a year from today, was expected to be $5/share. The dividend for the year after that was expected to be $5.50 per share, and so on. In fact, Middling Growth announces that it earned only $8 this year. It expects to earn $10 next year, and to resume 10% growth thereafter. Nonetheless, it will pay a dividend of $5/share next year, and then resume paying dividends that grow at 10% per year. The expected dividend stream is:

Year	Expected Earnings Before Setback	Expected Dividend Before Earnings Setback	Expected Earnings After Setback	Expected Dividend after Earnings Setback
0	$10		$8
1	$11	$5.00	$10	$5.00
2	$12.10	$5.50	$11	$5.00
3	$13.31	$6.05	$12.10	$5.50
4 and thereafter	10% higher than previous year	10% higher than previous year	10% higher than previous year	10% higher than previous year

The risk-adjusted market rate of interest for Middling Growth shares is r = .12 (12%).

a. What price should Middling Growth shares sell for, immediately after the announcement of the short-term earnings setback?

b. What percentage decline is this compared to the price that Middling Growth shares sold for before the announcement?

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