Question: Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P0=KegD1 P0=

 Omni Telecom is trying to decide whether to increase its cash

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P0=KegD1 P0= Price of the stock today D1= Dividend at the end of the first year D1=D0(1+g) D0= Dividend today xe= Required rate of return g= Constant growth rate in dividends D0 is currently $2.00,xe is 10 percent, and g is 4 percent. Under Pian A, 0 would be immediately increased to $2.50 and e and g will remain unchanged. Under Plan 8,o0 will remain at $2.00 but g will go up to 5 percent and xe will remain unchanged. a. Compute r0 (price of the stock today) under Plan A. Note D1 will be equal to p0(1+g) or $2.50(1.04).e will equal to percent, and g will equal 4 percent. (Round your intermediate calculations and final answer to 2 decimal places.) b. Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to p0=(1+9) or $2.00(1.05) : xe 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.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!