Problem $18-16($Algo$)$ Dividend valuation model and wealth maximization $[$LO$18-2]$

Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate.

$P_0=\frac{D_1}{K_e-g}$

$P_0=$ Price $of$ the stock today

$D_1=$ Dividend $at$ the end $of$ the first year

$D_1=D_0(1+g)$

$D_0=$ Dividend today

$K_e=$ Required rate $of$ return

$g=$ Constant growth rate $in$ dividends

$D_1=$ Dividend at the end of the first year

$D_0=$ Dividend today

$K_e=$ Required rate of return

$g=$ Constant growth rate in dividends

$D_0$ is currently $$2\mathrm{.}50,K_e$ is $11$ percent, and $g$ is $6$ percent.

Under Plan A$,D_0$ would be immediately increased to $$3\mathrm{.}00$ and $K_e$ and $g$ will remain unchanged.

Under Plan B$,D_0$ will remain at $$2\mathrm{.}50$ but $g$ will go up to $7$ percent and $K_e$ will remain unchanged.

a$.$ Compute

$P_0($price of the stock today$)$ under Plan A$.$

Note $D_1$ will be equal to $D_0(1+g)$ or $$3\mathrm{.}00(1\mathrm{.}06).$

$K_e$ will equal $11$ percent, and $g$ will equal $6$ percent.

Note: Round your intermediate calculations and final answer to $2$ decimal places.

Stock price for Plan A

b$.$ Compute

$P_0($price of the stock today$)$ under Plan $B.$

Note $D_1$ will be equal to $D_0(1+g)$ or $$2\mathrm{.}50(1\mathrm{.}07).$

$K_e$ will be equal to $11$ percent, and $g$ will be equal to $7$ percent.

Note: Round your intermediate calculations and final answer to $2$ decimal places.

Stock price for Plan B