Buggies-Are-UsSteady Freddie, IncGang Buster Groupg = 0g =55%Year 1$3.51(i.e., dividendsare expectedto remain at$3.053.05/share)(for theforeseeablefuture)Year 2$4.04Year 3$4.63Year 4$5.36Year 5$6.15 Year 6 and beyond: g =55% Assume there are three companies that in the past year paid exactly the same annual dividend of $3.05 a share. In addition, the future annual rate of growth individends for each of the three companies has been estimated as follows: Assume also that as the result of a strange set of circumstances, these threecompanies all have the same required rate of return (r=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?a. For Buggies-Are-Us, the value of the company's common shares is $(Round to the nearest cent.)

First, let me organize the dividend information for each company:**Buggies-Are-Us**:- g = 0…

Answered: Assume there are three companies that…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Buggies-Are-Us	Steady Freddie, Inc	Gang Buster Group
g = 0	g = 55%	Year 1	$3.51
(i.e., dividends are expected to remain at $3.053.05/share)	(for the foreseeable future)	Year 2	$4.04
Year 3	$4.63
Year 4	$5.36
Year 5	$6.15
		Year 6 and beyond: g = 55%