Question

In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Plan 2 Plan B 1.50 0.50 1.50 2.00 1.50 0.20 1.60 4.00 1.60 1.70 a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.) b. Mr. Bright, the Vice-President of Finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 10 percent: the discount rate for Plan B is 12 percent. Compute the present value of future dividends. (Do not round intermediate calculations and round your answers to 2 decimal places.) b.2. Which plan will provide the higher present value for the future dividends? 0412

Answer 1

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v1 00:37 1* E ENG 20.02-202019 X EK2O EA EB EC ED EEEF EGEH EIE EK EL EM YEAR PLAN A 1.5 PLAN B 1 0.5 2 1.5 TOTAL DIVIDEND PAID PLAN A 7.70 PLAN B 8.40 U AWN 1.5 1.6 1.6 7.7 8 TOTAL DIVIDEND PAID 8.4 pv factor formula = 1/(1+r)^n YEAR PV FACTOR PV OF PLANA AT 10% DIVIDENDS 1.5 0.9091 1.363636 1.5 0.8264 1.239669 1.5 0.7513 1.126972 1.6 0.6830 1.092822 1.6 0.6209 0.993474 PV OF DIVIDENDS 5.82 PV FACTOR PV OF PLAN B AT 12% DIVIDENDS 0.5 0.8929 0.446429 2 0 .7972 1.594388 0.2 0.7118 0.142356 0.6355 2.542072 1.7 0.5674 0.964626 PV OF DIVIDENDS 5.69 4 b-1 ANSWER -> PLAN A WILL PROVIDE THE HIGHEST PV OF FUTURE DIVIDENDS 24 ... ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPRAM TAX HEDGING MONEY MARKET GROWTH SUST PREF AND DIV POLICY She ... :