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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 0
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate.
PDKeg
P
Price of the stock today
D
Dividend at the end of the first year
DDtimes g
D
Dividend today
Ke
Required rate of return
g Constant growth rate in dividends
D
is currently $ Ke
is percent, and g is percent.
Under Plan A D
would be immediately increased to $ and Ke
and g will remain unchanged.
Under Plan B D
will remain at $ but g will go up to percent and Ke
will remain unchanged.
Compute P
price of the stock today under Plan A Note D will be equal to Dtimes g or $
Ke
will equal percent, and g will equal percent.
Note: Round your intermediate calculations and final answer to decimal places.
Compute P
price of the stock today under Plan B Note D will be equal to Dtimes g or $
Ke
will be equal to percent, and g will be equal to percent.
Note: Round your intermediate calculations and final answer to decimal places.
Which plan will produce the higher value?
multiple choice
Plan B
Plan A
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