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 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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