In doing a five-year analysis of future dividends, the Dawson Corporation is con

Question

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 A 1.10 1.10 1.10 1.70 1.70 Plan B 1.20 20 4.50 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.) 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 8 percent, the discount rate for Plan B is 12 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

Explanation / Answer

a) Total Dividend per share paid under the each plan :

b) Present value of Future dividends :

Plan A $1.10+1.10+1.10+1.70+1.70= $6.70 per share over future five years Plan B $0.10+1.20+0.20+4.50+1.80= $7.80 per share over future five years

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