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In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per...
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 Plan B
1 $1.70 .50
1.70 2.40
1.70 .30
1.90 3.00
1.90 1.60
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-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 7 percent; the discount rate for Plan B is 11 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?
Plan A
Plan B
