3.5 Verify the value of the prospective equity premium as of December 26, 2006 as computed in Section 3.2.5 using the data provided there. First, verify that the values of undiscounted terms in Equation (3.7) are as shown in the fourth column of the following exhibit. Second, write the discounted expression in terms of (1 + k)t and equate it to the observed P/E multiple.

Use the value of a constant-growth perpetuity for truncating Equation (3.7) at the end of year