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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. P=KegD1 P0=
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P=KegD1 P0= Price of the stock today D1= Dividend at the end of the first year D1=D0(1+g) D0= Dividend today e= Required rate of return g= Constant growth rate in dividends D0 is currently $2.20,e 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, D0 will remain at $2.20 but g will go up to 5 percent and Ke will remain unchanged. a. Compute P (price of the stock today) under Plan A. Note D1 will be equal to D0(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.) b. Compute P (price of the stock today) under Plan B. Note D1 will be equal to D0(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.)
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