Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate P 0 D 1 K e g P 0 Price of the stock today D 1 Dividend at the end of the first year D 1 D 0 (1 g ) D 0 Dividend today K e Required rate of return g Constant growth rate in dividends D 0 is currently $3 10, K e is 10 percent, and g is 4 percent Under Plan A, D 0 would be immediately increased to $3 50 and K e and g will remain unchanged Under Plan B, D 0 will remain at $3 10 but g will go up to 5 percent and K e will remain unchanged a Compute P 0 (price of the stock today) under Plan A Note D 1 will be equal to D 0 (1 g ) or $3 50 (1 04) K e will equal 10 percent, and g will equal 4 percent (Round your intermediate calculations and final answer to 2 decimal places ) b Compute P 0 (price of the stock today) under Plan B Note D 1 will be equal to D 0 (1 g ) or $3 10 (1 05) K e will be equal to 10 percent, and g will be equal to 5 percent

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Posted on Oct 02, 2024

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P 0

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
		K_e g

P₀ = Price of the stock today D₁ = Dividend at the end of the first year D₁ = D₀ (1 + g) D₀ = Dividend today K_e = Required rate of return g = Constant growth rate in dividends D₀ is currently $3.10, K_e is 10 percent, and g is 4 percent. Under Plan A, D₀ would be immediately increased to $3.50 and K_e and g will remain unchanged. Under Plan B, D₀ will remain at $3.10 but g will go up to 5 percent and K_e will remain unchanged.

a. Compute P₀ (price of the stock today) under Plan A. Note D₁ will be equal to D₀ (1 + g) or $3.50 (1.04). K_e will equal 10 percent, and g will equal 4 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 $3.10 (1.05). K_e will be equal to 10 percent, and g will be equal to 5 percent.