An investment business is considering taking a minority stake in two businesses, Montreal Foods Ltd. and Snacks Corp. Both are in the same line of business and both are listed on the stock exchange.
Montreal Foods Ltd. has had a stable dividend policy over the years. In the financial reports for the current year, the chair stated that a dividend of $0.30 a share would be paid in one year's time and financial analysts employed by the investment business expect dividends to grow at an annual compound rate of 10% for the indefinite future.
Snacks Corp. has had an erratic dividend pattern over the years and future dividends have been difficult to predict. However, to defend itself successfully against an unwelcome takeover, the business recently announced that dividends for the next three years were expected to be as follows:
Year Dividend per Share
1 .......................... $0.20
2 .......................... $0.32
3 .......................... $0.36

Financial analysts working for the investment business believe that, after Year 3, Snacks should enjoy a smooth pattern of growth, and dividends should grow at a compound rate of 8% for the indefinite future.
The investment business believes that a return of 14% is required to compensate for the risks associated with the industry in which the two businesses are engaged. Ignore taxes.
Required:
(a) State the arguments for and against valuing a share on the basis of its future dividends.
(b) Based on the expected future dividends of each business, calculate the value of a share in:
(i) Montreal Foods Ltd.
(ii) Snacks Corp.
Round present value factors to two decimals.