Provide the higher present value for future dividends

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Reference no: EM131998014

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. 1.20

2 1.20

3. 1.20

4. 1.60

5. 1.60

Plan B

yr1. 0.20

2. 1.40

3. .20

4. 4.20

5. 1.70

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 10 percent; the discount rate for Plan B is 14 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?

Reference no: EM131998014

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