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. 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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