Reference no: EM131997782

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 $ 1.60 $ .40

2 1.60 2.00

3 1.60 .20

4 2.00 4.00

5 2.00 1.40

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 11 percent;

The discount rate for Plan B is 15 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 or Plan B.