Value 200 Points In Doing A Five-Year Analysis Of Future Div

Value200 Pointsin Doing A Five Year Analysis Of Future Dividends

15value200 Pointsin Doing A Five Year Analysis Of Future Dividends

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. The data provided are for two plans over five years:

  • Year 1: Plan A - $1.60, Plan B - $0.60
  • Year 2: Plan A - $... (not provided), Plan B - $... (not provided)
  • Year 3: Plan A - $... (not provided), Plan B - $... (not provided)
  • Year 4: Plan A - $... (not provided), Plan B - $... (not provided)
  • Year 5: Plan A - $... (not provided), Plan B - $... (not provided)

Note: The problem seems to have incomplete data for the other years; however, the main task involves the total dividends over five years and the present value calculations based on given discount rates. The approximate calculations are to be verified using formulas or financial calculators.

Paper For Above instruction

In analyzing the value of future dividends for Dawson Corporation over a five-year span, two distinct dividend plans are considered, known as Plan A and Plan B. Each plan proposes different dividend payouts per share across five years. The core aim is to assess the total dividends distributed over this period and evaluate their present worth, considering different discount rates reflective of shareholder preferences for stability versus variability in dividends.

Methodology for Total Dividends Calculation

The total dividends paid per share over five years under each plan are obtained by summing the dividends for each year. Assuming the dividends for the missing years follow a consistent pattern or are provided elsewhere, a straightforward summation yields the cumulative dividends. For this analysis, only the first year's dividends are explicitly stated for each plan; thus, the total calculation would need the complete data for all five years, which, if unavailable, could be approximated or derived from the pattern implied.

Present Value Analysis of Future Dividends

The subsequent step involves calculating the present value (PV) of these future dividends, which adjusts their value to today's dollars, accounting for the time value of money. The discount rates applied—11% for Plan A and 13% for Plan B—are based on the premise that investors prefer a stable dividend stream and therefore discount these dividends at a lower rate, reflecting less risk or greater preference for stability.

Applying the Discount Rate Formula

The present value of a single future dividend payment, D, received in year t, is calculated using the formula:

PV = D / (1 + r)^t

where r is the discount rate. For multiple payments, the PV is the sum over all years:

PV_total = Σ [ D_t / (1 + r)^t ] for t=1 to 5

To approximate using Appendix B or financial calculator functions, these calculations are straightforward when all dividends are known. Given the example data, the PV calculations would incorporate the dividends for each year, discounted at the specified rates.

Comparison and Implications

Once the PV for each plan is computed, the plan with the higher present value is considered more favorable from a value perspective. Typically, the stable dividend plan (Plan A), with a lower discount rate, yields a higher PV, reflecting investor preference for stability. Conversely, Plan B, with potentially more variable dividends and a higher discount rate, might result in a lower PV.

Conclusion

Despite incomplete data for all five years, the analysis underscores that stability in dividends and investor discount rate preferences significantly influence the valuation of future dividend streams. When complete data is available, precise calculations enable better investment decision-making, illustrating the importance of both dividend consistency and appropriate discount rate selection.

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