Question: Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. R0=KcgD1P1=PriceofthestocktodayD1=DividendattheendofthefirstyearD1=D0(1+g)D0=DividendtodayKc=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.

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. R0=KcgD1P1=PriceofthestocktodayD1=DividendattheendofthefirstyearD1=D0(1+g)D0=DividendtodayKc=Requiredrateofreturng=Constantgrowthrateindividends D0 is currently $2.40,Kc is 13 percent, and g is 5 percent. Under Plan A,D0 would be immedlately increased to $3.00 and Kc and g will remain unchanged. Under Plan B, D0 will remain at $240 but g will go up to 6 percent and Ke 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 Note: 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 $2.40(1.06). K6 will be equal to 13 percent, and g will be equal to 6 percent. Note: 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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