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Omni Telecom is trying to decide whether to increase is cash dividend immediately or use the funds to increase its future growth rate. P=K1gD1 P0=

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Omni Telecom is trying to decide whether to increase is cash dividend immediately or use the funds to increase its future growth rate. P=K1gD1 P0= Price of the stock today D1= Dividend at the end of the first year D1=D0(1+g) D1= Dividend today Kc= Required rate of return g= Constant growth rate in dividends D0 is currently $2.00,Ke is 10 percent, and g is 5 percent. Under Plan A, D0 would be immediately increased to $2.20 and Ke and g will remain unchanged. a. Compute R0 (price of the stock today) under Plan A. Note D1 will be equal to D0(1+g) or $2.20(1.05). K,willequal 10 percent, and g will equal 5 percent. Note: Round your intermediate calculations and final answer to 2 decimal places. b. Compute P0 (price of the stock today) under Plan B, Note D1 will be equal to D0(1+g) or $2.00(1.06). K. will be equal to 10 percent, and g will be equal to 6 percent. Note: Round your intermediate calculations and final answer to 2 decimal places. c. Which plan will produce the higher value? Plan A Plan B

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