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 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.)
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