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.