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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.
P0=D1Keg
P0
= Price of the stock today
D1
= Dividend at the end of the first year
D1=D0\times (1+g)
D0
= Dividend today
Ke
= Required rate of return
g = Constant growth rate in dividends
D0
is currently $3.20, Ke
is 11 percent, and g is 6 percent.
Under Plan A, D0
would be immediately increased to $3.60 and Ke
and g will remain unchanged.
Under Plan B, D0
will remain at $3.20 but g will go up to 7 percent and Ke
will remain unchanged.
Compute P0
(price of the stock today) under Plan A. Note D1 will be equal to D0\times (1+g) or $3.60(1.06)
. Ke
will equal 11 percent, and g will equal 6 percent.
Note: Round your intermediate calculations and final answer to 2 decimal places.
Compute P0
(price of the stock today) under Plan B. Note D1 will be equal to D0\times (1+g) or $3.20(1.07)
. Ke
will be equal to 11 percent, and g will be equal to 7 percent.
Note: Round your intermediate calculations and final answer to 2 decimal places.

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