Problem 18-16 (Algo) Dividend valuation model and wealth maximization [LO18-2] Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. D R = R = Price of the stock today D Dividend at the end of the first year = D = Dbx (1+g) D = Dividend today K Required rate of return -9 g=Constant growth rate in dividends Do is currently $2.80, Ke is 8 percent, and gis 5 percent. Under Plan A. Do would be immediately increased to $3.30 and Ke and gwill remain unchanged. Under Plan B, D will remain at $2.80 but gwill go up to 6 percent and Ke will remain unchanged. a. Compute R (price of the stock today) under Plan A. Note D will be equal to Do x (1+g) or $3.30 (1.05). Ke will equal 8 percent, and gwill equal 5 percent. Note: Round your intermediate calculations and final answer to 2 decimal places. Stock p

rice for Plan A

b. Compute R0 iprice of the stock today) under Plan B. Note D1 will be equal to D0(1+g) or $2.80(1.06). Ke will be equal to 8 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 A Plan B Problem 18-16 (Algo) Dividend valuation model and wealth maximization [LO18-2] Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. P0=RgDF0=PriceofthestocktodayD1=DividendattheendofthefirstyearD1=D0(1+g)D0=DividendtodayK2=Requiredrateofreturng=Constantgrowthrateindividends g= Constant growth rate in dividends D0 is currently $280,Ke is 8 percent, and g is 5 percent. Under Plan A,D0 would be immediately increased to $3.30 and Ke and g will remain unchanged. Under Plan B,D0 will remain at $2.80, 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 $3.30(1.05). Ke will equal 8 percent, and g will equal 5 percent. Note: Round your intermediate calculations and final answer to 2 decimal places