lues 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   $ 1.80     $ 0.50   2     1.80       2.20   3     1.80       0.20   4     2.10       4.00   5     2.10       1.40

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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   $ 1.80     $ 0.50  
2     1.80       2.20  
3     1.80       0.20  
4     2.10       4.00  
5     2.10       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 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?

 

multiple choice

  • Plan A
  • Plan B
 
 
 
 
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