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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. Po =

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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. Po = Ke-9 Po = Price of the stock today D = Dividend at the end of the first year D1 - Dex (1 + 9) De = Dividend today Ke = Required rate of return g=Constant growth rate in dividends De is currently $2.00, ke is 10 percent, and g is 4 percent Under Plan A, D, would be immediately increased to $2.50 and K, and g will remain unchanged. Under Plan B, D, will remain at $2.00 but g will go up to 5 percent and Ke will remain unchanged. a. Compute Pe (price of the stock today) under Plan A. Note D will be equal to Do X (1 + g) or $2.50 (1.04). Ka will equal 10 percent, and g will equal 4 percent. (Round your intermediate calculations and final answer to 2 decimal places.) Stock price for Plan A b. Compute Pe (price of the stock today) under Plan B. Note Dwill be equal to De X (1 + g) or $2.00 (1.05). Ke will be equal to 10 percent, and g will be equal to 5 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 B Plan A

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