chapter 15 and 16

Create an Excel spreadsheet to organize your answers to the following problem, and submit your Excel file as an attachment by clicking on the appropriate button on this page.

A company is considering the following two dividend policies for the next five years.

Year Policy #1 Policy #2

1 $4.00 $6.00

2 $4.00 $2.70

3 $4.00 $5.00

4 $4.00 $3.10

5 $4.00 $3.20

Part 1: How much total dividends per share will the stockholders receive over the five year period under each policy?

Part 2: If investors see no difference in risk between the two policies, and therefore apply a 9.4% discount rate to both, what is the present value of each dividend stream?

Part 3: Suppose investors see Policy #2 as the riskier of the two. And they therefore apply a 9.4% discount rate to Policy #1 but a 14% discount rate to Policy #2. Under this scenario, what is the present value of each dividend stream?

Part 4: What conclusions can be drawn from this exercise?