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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. D1 Poke
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. D1 Poke - 9 Po = Price of the stock today D1 = Dividend at the end of the first year D1 = Do * (1 + g) Do = Dividend today Ke = Required rate of return g=Constant growth rate in dividends Do is currently $2.20, ke is 12 percent, and g is 4 percent. Under Plan A, D, would be immediately increased to $2.80 and Ke and g will remain unchanged. Under Plan B, De will remain at $2.20 but g will go up to 5 percent and Ke will remain unchanged. a. Compute Pe (price of the stock today) under Plan A. Note D1 will be equal to Do * (1 + g) or $2.80 (1.04). Ke will equal 12 percent, and g will equal 4 percent. (Round your intermediate calculations and final answer to 2 decimal places.) Stock price for Plan A b. Compute Pe (price of the stock today) under Plan B. Note D1 will be equal to Do X (1 + g) or $2.20 (1.05). Ke will be equal to 12 percent, and g will be equal to 5 percent. (Round your intermediate calculations and final answer to 2 decimal places.) Stock price for Plan B
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