In doing a five-year analysis of future dividends, CHERRY CORPORATION is considering two plans. The
values represent dividends ber share
Plan A
Year 1 1.50
Year 2 1.50
Year 3 1.50
Year 4 1.60
Year 5 1.60
Plan B
Year 1 0.50
Year 2 2.00
Year 3 0.20
Year 4 4.00
Year 5 1.70
The vice president for 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.
Thus, Plan A uses a 10 percent discount rate, while Plan B uses a 12 percent discount rate.
Which plan will provide the higher present value for the future dividends? Show computations. Round your final answers to two decimal places.
values represent dividends ber share
Plan A
Year 1 1.50
Year 2 1.50
Year 3 1.50
Year 4 1.60
Year 5 1.60
Plan B
Year 1 0.50
Year 2 2.00
Year 3 0.20
Year 4 4.00
Year 5 1.70
The vice president for 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.
Thus, Plan A uses a 10 percent discount rate, while Plan B uses a 12 percent discount rate.
Which plan will provide the higher present value for the future dividends? Show computations. Round your final answers to two decimal places.