Assume there are three companies that in the past year paidexactly the same annual dividend of ?$2.88 a share. In? addition,the future annual rate of growth in dividends for each of the threecompanies has been estimated as? follows:

(Click on the icon located on the? top-right corner of the datatable below in order to copy its contents into a? spreadsheet.)

?Buggies-Are-Us	Steady? Freddie, Inc	Gang Buster Group
g? = 0	g? = 9?%	Year 1	?$3.24
?(i.e., dividends are expected to remain at ?$2.88?/share)	?(for the foreseeable future)	Year 2	?$3.64
		Year 3	?$4.09
		Year 4	?$4.60
		Year 5 and? beyond: g? = 9%

Assume also that as the result of a strange set of?circumstances, these three companies all have the same requiredrate of return (r=14%).

a. Use the appropriate DVM to value each ofthese companies.

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

a. 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 commonshares is $__. (Round to the nearest? cent.)

For Gang Buster? Group, the value of the? company's commonshares is $___. (Round to the nearest? cent.)

b. Comment briefly on the comparative values ofthese three companies. What is the major cause of the differencesamong these three? valuations??(Select the best choice? below.)

A.The value of? Buggies-Are-Us is $20.57 compared to $62.80 forSteady? Freddie, Inc., and $70.45 for Gang Busters Group. Thedifference in values is caused by the difference in dividend growthrates. The? Buggies-Are-Us dividends do not? grow, resulting in thelowest value. The dividends of Steady? Freddie, Inc., grow at aconstant rate of 9?% forever, whereas Gang Busters? Group'sdividends grow at approximately? 12% for the first four years and14?% from year five to the foreseeable future. The higher growth individends in the earlier years causes the stock of Gang BustersGroup to be worth more than Steady? Freddie, Inc., stock.

B. The value of? Buggies-Are-Us is $20.57 compared to $62.80 forSteady? Freddie, Inc., and $70.45 for Gang Busters Group. Thedifference in values is caused by the difference in dividend growthrates. The? Buggies-Are-Us dividends do not? grow, resulting in thelowest value. The dividends of Steady? Freddie, Inc., grow at aconstant rate of 9?% forever; whereas Gang Busters? Group'sdividends grow at approximately? 12% for the first four years and9?% from year five to the foreseeable future. The higher growth individends in the earlier years causes the stock of Gang BustersGroup to be worth more than the Steady? Freddie, Inc., stock.