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 Pe=

 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 Pe= Price of the stock today D1= Dividend at the end of the first year D1=D(1+q) D= Dividend today Ke= Required rate of return g= Constant growth rate in dividends D is currently $3.50,Ke is 9 percent, and g is 5 percent. Under Plan A,De would be immediately increased to $4.00 and Ke and g will remain unchanged. Under Plan B.0e will remain at $3.50 but g will go up to 6 percent and Ke will remain unchanged. a. Compute P (price of the stock today) under Plan A. Note D1 will be equal to D(1+g) or $4,00(1.05). Ke will equal 9 percent. and g will equal 5 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 D(1+g) or $3.50(1.06).Ke will be equal to 9 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? Pian A Pian B

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