Assume there are three companies that in the past year paid exactly the same annual dividend of $1.28 a share. In addition, the future annual rate of growth in dividends for each of the three companies has been estimated as follows: SEE TABLE. Assume also that as the result of a strange set of circumstances, these three companies all have the same required rate of return (r=12). Buggies-
Are-Us Steady Freddie, Inc Gang Buster
Group g = 0 g = 8% Year 1 $1.44 (i.e. dividends
are expected
to remain at
$1.28/share (for the
foreseeable
future) 2 $1.62 3 $1.82 4 $2.05 Year 5 and beyond:
g = 8%

a. Use the appropriate DVM to value each of these companies.

b. Comment briefly on the comparative values of these three companies. What is the major cause of the differences among these three valuations?

For Buggies-Are-Us, the value of the company's common shares is _______ (Round to the nearest cent.)

For Steady Freddie, Inc., the value of the company's common shares is ______(Round to the nearest cent.)

For Gang Buster Group, the value of the company's common shares is _______ (Round to the nearest cent.)

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