Reference no: EM132564782

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 $0.60
2 1.60 2.20
3 1.60 0.30
4 1.90 4.20
5 1.90 2.00

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 9 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