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

$P_0=\frac{D_1}{K_e-g}$

$P_0=$ 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 $$2\mathrm{.}00,K_e$ is $8$ percent, and $g$ is $4$ percent.

Under Plan $A,D_0$ would be immediately increased to $$2\mathrm{.}50$ and $K_e$ and $g$ will remain unchanged.

Under Plan B$,$ Do will remain at $$2\mathrm{.}00$ 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 $$2\mathrm{.}50(1\mathrm{.}04).K_e$ will equal $8$

percent, and $g$ will equal $4$ percent.

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

Stock price for Plan $A$

b$.$ Compute $P_0($price of the stock today$)$ under Plan $B.$ Note $D_1$ will be equal to $D_0(1+g)$ or $$2\mathrm{.}00(1\mathrm{.}05).K_e$ will be equal

to $8$ percent, and $g$ will be equal to $5$ percent.

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

Stock price for Plan B

c$.$ Which plan will produce the higher value?

Plan A

Plan B