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

P0=D1Keg

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 $2.40, Ke is 13 percent, and g is 5 percent.

Under Plan A, D0 would be immediately increased to $3.00 and Ke and g will remain unchanged.

Under Plan B, D0 will remain at $2.40 but g will go up to 6 percent and Ke will remain unchanged.

1- Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0(1+g) or $3.00 (1.05) . Ke will equal 13 percent, and g will equal 5 percent.

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

2- Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $2.40 (1.06) . Ke will be equal to 13 percent, and g will be equal to 6 percent.

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

3- Which plan will produce the higher value?

multiple choice

Plan B

Plan A