Fasttrack, Inc., and LoTech Corp. each just paid an annual dividend of $1. Fasttrack is a computer software firm whose dividends are expected to grow by 6% per year, in perpetuity. LoTech is a not-so-creative mining company whose sole asset is a dwindling ore body. As a result, LoTech’s dividends are expected to decrease 3% per year on an ongoing basis.
Assuming that a discount rate of 10% is appropriate, compute the market value of a common share in each company. Briefly provide intuition for why their values differ.