## Thursday, 21 May 2015

### 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.

 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 \$ .30 2 1.80 2.00 3 1.80 .50 4 2.20 6.00 5 2.20 1.50

 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.)

 Total Dividends Plan A \$ Plan B \$

 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 12 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.)

 Present Value ofFuture Dividends Plan A \$ Plan B \$

 b-2. Which plan will provide the higher present value for the future dividends? Plan A

Explanation: