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 cashdividend immediately or use the funds to increase its future growth rate.

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 Ke= Required rate of return g= Constant growth rate in dividends D0 is currently $2.40,Ke is 13 percent, and g is 5 percent. Under Plan A,D0 would be immediately increased to $3.00 and e and g will remain unchanged. Under Plan B,D0 will remain at $2.40 but g will go up to 6 percent and e will remain unchanged. a. Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0(1+g) or $3.00(1.05).Ke will equal 13 percent, and g will equal 5 percent. (Round your intermediate calculations and final answer to 2 decimal places.) b. Compute P (price of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $2.40(1.06). Ke will be equal to 13 percent, and g will be equal to 6 percent. (Round your intermediate calculations and final answer to 2 decimal places.) c. Which plan will produce the higher value? Plan B Plan A

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