Question
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
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 | $ | 1.60 | $ | .40 | ||||
2 | 1.60 | 2.00 | ||||||
3 | 1.60 | .20 | ||||||
4 | 2.00 | 4.00 | ||||||
5 | 2.00 | 1.40 | ||||||
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.)
Total Dividends.
Plan A: ???
Plan B: ???
b. 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 11 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.)
Present value of future dividends
Plan a: ???
Plan b: ???
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