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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 D1 Po
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate D1 Po Price of the stock today D1Dividend at the end of the first year D1 Dox(1+g D0 = Dividend today Ke Required rate of return g- Constant growth rate in dividends Do is currently $3.00, Ko is 8 percent, and g is 5 percent. Under Plan A, Do would be immediately increased to $3.40 and Ke and g will remain unchanged. Under Plan B, Do will remain at $3.00 but g will go up to 6 percent and Ke will remain unchanged. a. Compute Po (price of the stock today) under Plan A. Note D1 will be equal to Do(1g) or S3.40 (1.05). Ke will equal 8 percent, and g will equal 5 percent. (Round your intermediate calculations and final answer to 2 decimal places.) Stock price for Plan A b. Compute Po (price of the stock today) under Plan B. Note D1 will be equal to Dox(1g) or $3.00 (1.06). Ke will be equal to 8 percent, and g will be equal to 6 percent. (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
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