Problem 18-16 Dividend valuation model and wealth maximization (LO18-21 Omni Telecom is trying to decide whether to Increase its cash dividend Immediately or use the funds to Increase its future growth rate. Pe D1 Ke - 9 = Pe = Price of the stock today D1 = Dividend at the end of the first year D1 = Da * (1 + g) De = Dividend today Ke = Required rate of return g=Constant growth rate in dividends Dg is currently $2.50, Ke Is 10 percent, and gis 4 percent. Under Plan A. De would be immediately increased to $270 and Ke and g will remain unchanged. Under Plan B, D, will remain at $2.50 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 Du will be equal to De *(1 + g) or $2.70 (1.04). Ke will equal 10 percent, and 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 D will be equal to De * (1 + g) or $2.50 (1.05). Ke will be equal to 10 percent, and gwill 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? O Plan A Plan B