Question: Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P=KegD1P=PriceofthestocktodayD1=DividendattheendofthefirstyearD1=D(1+g)D=DividendtodayKe=Requiredrateofreturng=Constantgrowthrateindividends D0

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P=KegD1P=PriceofthestocktodayD1=DividendattheendofthefirstyearD1=D(1+g)D=DividendtodayKe=Requiredrateofreturng=Constantgrowthrateindividends D0 is currently $2.10,ke is 14 percent, and g is 6 percent. Under Plan A,D would be immediately increased to $2.60 and Ke and g will remain unchanged. Under Plan B,D will remain at $2.10 but g will go up to 7 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 $2.60(1.06). Ke will equal 14 percent, and g will equal 6 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 D0(1+g) or $2.10(1.07). Ke will be equal to 14 percent, and g will be equal to 7 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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