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$1$Ke$$g

P$0$

$=$ Price of the stock today

D$1$

$=$ Dividend at the end of the first year

D$1=$D$0\backslash$times $(1+$g$)$

D$0$

$=$ Dividend today

Ke

$=$ Required rate of return

g $=$ Constant growth rate in dividends

D$0$

is currently $$3\mathrm{.}50,$ Ke

is $9$ percent, and g is $5$ percent.

Under Plan A$,$ D$0$

would be immediately increased to $$4\mathrm{.}00$ and Ke

and g will remain unchanged.

Under Plan B$,$ D$0$

will remain at $$3\mathrm{.}50$ but g will go up to $6$ percent and Ke

will remain unchanged.

Compute P$0$

$($price of the stock today$)$ under Plan A$.$ Note D$1$ will be equal to D$0\backslash$times $(1+$g$)$ or $$4\mathrm{.}00(1\mathrm{.}05).$ Ke

will equal $9$ percent, and g will equal $5$ percent.

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

Compute P$0$

$($price of the stock today$)$ under Plan B$.$ Note D$1$ will be equal to D$0\backslash$times $(1+$g$)$ or $$3\mathrm{.}50(1\mathrm{.}06).$ Ke

will be equal to $9$ percent, and g will be equal to $6$ percent.

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

Which plan will produce the higher value?

multiple choice

Plan A

Plan B