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}  = 
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 $2.90, K_{e}
is 9 percent, and g is 6 percent.
Under Plan A, D_{0} would be
immediately increased to $3.30 and K_{e}
and g will remain unchanged.
Under Plan B, D_{0} will remain at $2.90 but
g will go up to 7 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 $3.30 (1.06).
K_{e} will equal 9 percent, and g will
equal 6 percent. (Round your intermediate calculations and
final answer to 2 decimal places.)

b. Compute P_{0} (price of the
stock today) under Plan B. Note D_{1} will be
equal to D_{0} × (1 + g) or $2.90 (1.07).
K_{e} will be equal to 9 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 
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