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

P0=D1Keg0=1

P00 = Price of the stock today

D11 = Dividend at the end of the first year

D1=D0(1+g)1=0(1+)

D00 = Dividend today

Ke = Required rate of return

g = Constant growth rate in dividends

D00 is currently $2.00, Ke is 10 percent, and g is 4 percent.

Under Plan A, D00 would be immediately increased to $2.50 and Ke and g will remain unchanged.

Under Plan B, D00 will remain at $2.00 but g will go up to 5 percent and Ke will remain unchanged.

1. Compute P00 (price of the stock today) under Plan A. Note D1 will be equal to D0(1+g) or $2.50 (1.04)Note 1 will be equal to 0(1+) $2.50 (1.04) . Ke will equal 10 percent, and g will equal 4 percent.

Note: Round your intermediate calculations and final answer to 2 decimal places.

1. Compute P00 (price of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $2.00 (1.05)Note 1 will be equal to 01+ $2.00 1.05 . Ke will be equal to 10 percent, and g will be equal to 5 percent.

Note: Round your intermediate calculations and final answer to 2 decimal places.

1. Which plan will produce the higher value?

1. multiple choice

Plan B

Plan A