Assume there are 3 companies that in the past year paid exactly the same annual dividend of $2.25 a share. In addition, the future annual rate of growth in dividends for each of the 3 companies has been estimated as follows:

Assume also that as the result of a strange set of circumstances, these 3 companies all have the same required rate of return (r = 10%).
a. Use the appropriate DVM to value each of these companies.
b. Comment briefly on the comparative values of these 3 companies. What is the major cause of the differences among these 3 valuations?

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Buggies-Are-Us Steady Freddie, Inc Gang Buster Group $2.53 $2.85 $3.20 $3.60 Year 5 and beyond: g Year 1 9 0 (i.e., dividends are expected to remain at $2.25/share) g-6% (for the foreseeable future) 4 6%