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Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P0=D1Keg P0
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P0=D1Keg P0 = Price of the stock today D1 = Dividend at the end of the first year D1=D0(1+g) D0 = Dividend today Ke = Required rate of return g = Constant growth rate in dividends D0 is currently $3.20, Ke is 11 percent, and g is 6 percent. Under Plan A, D0 would be immediately increased to $3.60 and Ke and g will remain unchanged. Under Plan B, D0 will remain at $3.20 but g will go up to 7 percent and Ke will remain unchanged. Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0(1+g) or $3.60 (1.06) . Ke will equal 11 percent, and g will equal 6 percent. Note: Round your intermediate calculations and final answer to 2 decimal places. Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $3.20 (1.07) . Ke will be equal to 11 percent, and g will be equal to 7 percent. Note: Round your intermediate calculations and final answer to 2 decimal places. Which plan will produce the higher value? multiple choice Plan A Plan B
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