Assume there are three companies that in the past year paid exactly the same annual dividend...

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Finance

Assume there are three companies that in the past year paidexactly the same annual dividend of $1.28 a share. In addition, thefuture annual rate of growth in dividends for each of the threecompanies has been estimated as follows: SEE TABLE. Assume alsothat as the result of a strange set of circumstances, these threecompanies all have the same required rate of return (r=12).
Buggies-
Are-Us Steady Freddie, Inc Gang Buster
Group
g =0 g =8% Year1 $1.44
(i.e.dividends
are expected
to remain at
$1.28/share (forthe
foreseeable
future) 2 $1.62
3 $1.82
4 $2.05
Year 5and beyond:
g = 8%
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?
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 common sharesis ___ (Round to the nearest cent.)

Answer & Explanation Solved by verified expert

4.4 Ratings (931 Votes)

Buggies areUS The appropriate DVM method to use is single DVM method with no growth Price of stock DR 128012 1066 Steady Freddie The appropriate DVM method to use is See Answer

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Transcribed Image Text

Assume there are three companies that in the past year paidexactly the same annual dividend of $1.28 a share. In addition, thefuture annual rate of growth in dividends for each of the threecompanies has been estimated as follows: SEE TABLE. Assume alsothat as the result of a strange set of circumstances, these threecompanies all have the same required rate of return (r=12).Buggies-Are-UsSteady Freddie, IncGang BusterGroupg =0g =8%Year1$1.44(i.e.dividendsare expectedto remain at$1.28/share(fortheforeseeablefuture)2$1.623$1.824$2.05Year 5and beyond:g = 8%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?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 common sharesis _______ (Round to the nearest cent.)

Buggies- Are-Us	Steady Freddie, Inc	Gang Buster Group
g =0	g =8%	Year1	$1.44
(i.e.dividends are expected to remain at $1.28/share	(forthe foreseeable future)	2	$1.62
		3	$1.82
		4	$2.05
		Year 5and beyond: g = 8%