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

P0	=	D1
		Ke g

P₀ = Price of the stock today D₁ = Dividend at the end of the first year D₁ = D₀ (1 + g) D₀ = Dividend today K_e = Required rate of return g = Constant growth rate in dividends D₀ is currently $2.50, K_e is 11 percent, and g is 6 percent. Under Plan A, D₀ would be immediately increased to $3.00 and K_e and g will remain unchanged. Under Plan B, D₀ will remain at $2.50 but g will go up to 7 percent and K_e will remain unchanged.

a. Compute P₀ (price of the stock today) under Plan A. Note D₁ will be equal to D₀ (1 + g) or $3.00 (1.06). K_e will equal 11 percent, and g will equal 6 percent. (Round your intermediate calculations and final answer to 2 decimal places.)

b. Compute P₀ (price of the stock today) under Plan B. Note D₁ will be equal to D₀ (1 + g) or $2.50 (1.07). K_e will be equal to 11 percent, and g will be equal to 7 percent. (Round your intermediate calculations and final answer to 2 decimal places.)

c. Which plan will produce the higher value?

multiple choice

Plan A

Plan B

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P=KegD1 P0= Price of the stock today D1= Dividend at the end of the first year D1=D0(1+g) D0= Dividend today e= Required rate of return g= Constant growth rate in dividends D0 is currently $2.50,Ke is 11 percent, and g is 6 percent. Under Plan A,D would be immediately increased to $3.00 and ke and g will remain unchanged. Under Plan B,o0 will remain at $2.50 but g will go up to 7 percent and ke will remain unchanged. a. Compute P (price of the stock today) under Plan A. Note D1 will be equal to D(1+g) or $3.00(1.06).Ke will equal 11 percent, and g will equal 6 percent. (Round your intermediate calculations and final answer to 2 decimal places.) b. Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $2.50 (1.07). Ke will be equal to 11 percent, and g will be equal to 7 percent. (Round your intermediate calculations and final answer to 2 decimal places.) c. Which plan will produce the higher value? Plan A Plan B