Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: Eastern Telecom is trying to decide whether to raise its cash dividend immediately or use the funds to raise its future growth rate. It will use the dividend valuation model originally presented in Chapter ten for purposes of analysis. The model was shown as Formula 10-9 and is reproduced below.

[With a slight addition in definition of terms]

P0 - D1

Ke - g

D1 - Dividend at the end of the 1st year

P0 - Price of the stock today

Ke - Required rate of return

D0 x (1 x g)

D0 - Dividend today

g - Constant growth rate in dividends

D0 is currently $3.00, Ke is 10%, & g is 5%.

Under Plan A, D0 would be immediately increased to $3.40 & Ke and g will remain unchanged.

Under Plan B, D0 will remain at $3.00 but g will go up to 6% & Ke will remain unchanged.

[A] find out P0 (price of the stock today) under Plan A. Note D1 will be equal to D0 x (1 + g) or $3.40 (1.05). Ke will equal 10% and g will equal 5%.

[B] find out P0 (price of the stock today) under Plan B. Note D1 will be equal to D0 x (1 + g) or $3.00 (1.06). Ke will be equal to 10% & g will be equal to 6%.

[C] Which plan will produce the higher value?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920152

Have any Question? 


Related Questions in Basic Finance

1 comment on the following statement a key benefit of

1. Comment on the following statement: A key benefit of leasing is that it allows for the effective depreciation of land. 2. How would the availability of floating-rate debt rather than fixed-rate debt affect the lease-v ...

1 in analyzing the data from an experiment why is it not

1. In analyzing the data from an experiment, why is it not sufficient simply to examine the condition means to see whether they differ? 2. Assuming that all confounds were eliminated, the means of the conditions in an ex ...

1 what are the trade-offs among the three alternative loan

1. What are the trade-offs among the three alternative loan maturities? 2. Based on the information on finance payments that you retrieved from the loan payment Web site, advise the Sampsons on the best loan maturity for ...

1 would you expect the profit margin in a quality jewelry

1. Would you expect the profit margin in a quality jewelry store to differ from that of a grocery store? Comment. 2. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain ...

Excel assignmentsthis assignment is to develop an excel

Excel Assignments This assignment is to develop an Excel Spreadsheet for a company. The spreadsheet should include instructions on how to enter in the inputs. (For example, should the initial investment be entered in as ...

Psychology developed primarily as an experimental science

Psychology developed primarily as an experimental science. However, during the past 20 to 25 years, non-experimental methods (such as correlational research) have become increasingly popular. Why do you think this change ...

Finance helpdescribe how to maximize the value of each

Finance help Describe how to maximize the value of each purchase by utilizing a cost-benefit analysis to make rational decisions about corporate spending, financing projects, or investments. Would you consider cost-benef ...

The predicted cash flows for the all-mine corporation are

The predicted cash flows for the All-Mine Corporation are $4,500 in a good economy, $3000 in an average economy, and $1000 in a poor economy. Each economic outcome is equally likely and the promised debt repayment is $30 ...

The hudson corporation makes an investment of 24000 that

The Hudson Corporation makes an investment of $24,000 that provides the following cash flow: Year Cash Flow 1................ $ 13,000 2................ 13,000 3................ 4,000 a. What is the net present value at ...

Calculate the total lift force on the arctic hut shown

Calculate the total lift force on the Arctic hut shown below as a function of the location of the opening. The lift force results from the difference between the inside pressure and the outside pressure. Assume potential ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro