Dividend discount model.
Consider 3 stocks:
a. Stock A is expected to provide a dividend of $10/share forever.
b. Stock B is expected to pay a $5 dividend next year. Thereafter, dividend growth is expected to be 4% a year forever.
c. Stock C is expected to pay a $5 dividend next year. Thereafter, growth is expected to be 20% a year for 5 years (years 2 through 6) and 0 thereafter.
If the market capitalization rate for each stock is 10%, which stock is the most valuable?