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 $ 1.30 $ 0.30 2 1.30 1.60 3 1.30 0.20 4 1.50 4.00 5 1.50 1.80 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 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?
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 | $ | 1.30 | $ | 0.30 | ||||
| 2 | 1.30 | 1.60 | ||||||
| 3 | 1.30 | 0.20 | ||||||
| 4 | 1.50 | 4.00 | ||||||
| 5 | 1.50 | 1.80 | ||||||
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 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?
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