Question

hapter 18 HW ! You skipped this question in the previous attempt Problem 18-9 Policy on payout ratio [LO18-1) 14 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 A $1.00 1.00 Plan B $e.le 1.20 Book 4.00 Print 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.) Total Dividends Plan A Plan B 5.1. 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 percent the discount rate for Plan B is 14 percent. Compute the present value of future dividends. (Do not round Intermediate < Prev 14 of 20 !! Next >

Answer 1

Solution: Plan A Plan B Total Dividends $6.00 $7.20 Explanation: Plan A = $1.00 + $1.00 + $1.00 +$1.50 + $1.50 Plan A = $6.00 Plan B = $0.10 + $1.20 + $0.30 + $4.00 + $1.60 Plan B = $7.20 b-1 Plan A N Dividend per share PVF (9%) $1.00 0.9174 $1.00 0.8417 $1.00 0.7722 $1.50 0.7084 $1.50 0.6499 Present value of future dividends Present value $0.92 $0.84 $0.77 $1.06 $0.97 $4.57 w u

Plan B Dividend per share PVF (14%) $0.10 0.8772 $1.20 0.7695 $0.30 0.6750 $4.00 0.5921 $1.60 0.5194 Present value of future dividends Present value $0.09 $0.92 $0.20 $2.37 $0.83 $4.41 PVF = Present Value Factor Present value = Dividend per share x Present value factor b-2 Plan A will provide the higher present value of future dividends.