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

P0 = D1 Ke g

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 $2.90, Ke is 9 percent, and g is 5 percent. Under Plan A, D0 would be immediately increased to $3.20 and Ke and g will remain unchanged. Under Plan B, D0 will remain at $2.90 but g will go up to 6 percent and Ke will remain unchanged.

a. Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0 (1 + g) or $3.20 (1.05). Ke will equal 9 percent, and g will equal 5 percent. (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 $2.90 (1.06). Ke will be equal to 9 percent, and g will be equal to 6 percent. (Round your intermediate calculations and final answer to 2 decimal places.)

c. Which plan will produce the higher value? Plan A Plan B