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.
  
 
  YearPlan APlan 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 of
Future Dividends
  Plan A$  
  Plan B$  


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

 
Explanation: