In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Plan A | Plan B |
| 1 | | $ | 1.80 | | | $ | .30 | |
| 2 | | | 1.80 | | | | 2.00 | |
| 3 | | | 1.80 | | | | .50 | |
| 4 | | | 2.20 | | | | 6.00 | |
| 5 | | | 2.20 | | | | 1.50 |
a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.)
Plan A:
Plan B:
b-1. Mr. Bright, the vice president of finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 12 percent; the discount rate for Plan B is 15 percent. Compute the present value of future dividends. (Do not round intermediate calculations and round your answers to 2 decimal places.)
Plan A:
Plan B:
Appendlix B Present value of 1, PW, Period 0.583 4 5 678s g=2 5 g Percent 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.97 0.909 0.901 0.893 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 | .842 0.826 0.812 | 0.797 0.971 0.942 | 1915 0.889 0.864 0.840 0.816 | 0.794 0.72 | 0.751 0.731 0.712 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.706 10.683 0.659 0.636 0.951 | 0.906 | 0.863 0.822 | | 0.764 | 0.747 0.713 0.681 3.650 | 0.621 0.593 0.567 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.933 | 0.871 | 0.813 | 0.76 | 0.711 0.665 | 0.623 0.547 0.513 | 0.482 10.452 0.923 0.853 0.789 0.731 | 0.677 0.627 0.582 0.540 0.502 0.467 0.434 10.404 0.914 0.837 0.766 0.703 | | 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.905 | 0.820 0.744 0.676 0.614 0.58 0.505 0.463 0.422 0.386 0.352 0.322 0.896 | 0.804 0.722 0.650 0.585 0.27 0.475 0.429 | 0.388 | 0.350 0.317 0.287 0.887 | 0.788 0.701 0.625 0.557 | 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.879 0.73 0.61 0.601 | 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.870 0.758 0.661 0.577 | 0.505 10.442 0.388 0.340 0.299 0.263 0.232 0205 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.853 0.728 0.623 0.534 0.458 | 0.394 | 0.339 | 0.292 0.252 | 0.218 0.18 0.163 0.844 0.714 10.605 0.513 | 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.836 | | 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 | 0.153 0.130 0.828 | 0.686 0.570 0.475 0.396 0.331 1277 0.232 0.194 0.164 0.138 0.116 0.820 | 0.673 | 0.554 0.456 0.377 0.312 0258 0.215 | 0.178 0.149 0.124 | 0.104 0.780 10.610 0.476 0.375 | | 0.295 0.233 0.184 0.1466 0.116 0.092 0.074 0.059 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.672 0.453 0.307 0208 0.142 | 0.097 0.067 0.046 .032 0.022 0.015 0.011 0.608 0.372 0.226 0.087 | 0.054 | 0.034 0.021| 0.013 | 0.009 0.005 | 0.003 98%898 . 141 Appendlx B (concludel) Period | 0.06 34567890 m3 +5 bmp as 98 Percent 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 0.885 0.877 0.870 0.862 0.855 0.847 0.240 0.833 0.800 0.769 0.741 0.714 | 0.67 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549 1.510 | 0.444 0.693 0.675 0.658 0.641 0.624 | 0.609 0.593 0.579 0.512 0.455 0.406 0.364 0.296 0.613 | | 0.592 0.572 | 0.552 | | 0.534 0.515 0.499 | 0.482 | 0.410 0.350 0.301 0.260 0.198 0.543 0.519 0.497 0.476 0.456 | | 0.437 | 0.419 0.402 0.323 0.269 0.223 0.186 | 0.132 0.480 0.456 | | 0.432 0.410 | 0.390 0.370 0.352 0.335 | 0.262 | | 0207 | 0.165 | 0.133 0.088 0.425 0.400 0.376 | 0.354 0.333 0.314| 0.296 0.279 0.210 | 0.159 0.122 | 0.095 0.059 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0233 0.168 0.123 | 0.091 0.039 0.333 0.308 | 0.284 | | 0.263 | 0.243 0.225 0.209 | 0.1984 0.134 | 0.094 0.067 | .048 | 0.026 0.295 10.270 | | 0.247 | 0.227 0.208 | 0.191 0.176 .162 0.107 | 0.073 | 0.050 0.035 0.017 0.261 0.237 0.215 0.195 0.178 | | 0.162 | 0.148 | 0.135 .056 | 0.056 .037 0.025 0.012 0.231 | 0.208 | 0.1871 10.168 | 0.152 0.137 | 0.124 0.112 0.069 0.043 0.027 0.018 | 0.008 0.204 0.182 | 0.163 0.145 | 0.130 0.116 | | 0.104 | 0.093 0.055 0.033 | 0.020 | | 0.013 0.005 0.181 0.160| | 0.141| 0.125 | 0.111 0.099 0.088 | | 0.078 0.044 | | 0.025 | 0.015 0.009 | 0.003 0.160 0.140 | 0.123 .108 0.095 0.084 0.074 0.085 0.035 | 0.020 | 0.011 .JC6 0.002 0.141 | 0.123 0.107 0.093 | | 0.081 | | 0.071 0.062 | 0.054 0.028 0.015 0.008 0.005 | 0.002 0.125 10.108 0.093 | 0.080 0.069 0.060 0.052 10.045 | 0.023 0.012 0.006 0.003 0.001 0.111 0.095 0.081 0.069 0.059 | 0.051 0.044 | 0.036 | .01g 0.009 0.005 0.002 0.001 0.098 | 0.083 | | 0.070 0.060 | 0.051 0.043 0.037 0.031 0.014| 0.007 0.003 0.002 0.087 0.073 0.061 0.051 0.043 | 0.87 | 0.031 0.026 0.012 | 0.005| 0.002 | 0.001 0.047 0.038 0.030 | 0.024 | | 0.020 0.016 0.013 0.010 0.004 0.001 0.001 0.026 0.020 0.015 0.012 0.009 | 0.007 0.005 | .005 .004 0.001 0 0.008 | 0.005 0.004 0.003 0.002 | 0.001 0.001 | 0.001 0 0.002| | 0.001 0.001 0.001 0 oooo ooo
