32. Hunter Petroleum Corporation paid a $2 dividend last year. The dividend is expected to grow at a constant rate of 5 percent forever. The required rate of return Chapter 10: Valuation and Rates of Return 331 www.tex-cetera.com is 12 percent (this will also serve as the discount rate in this problem). Round all values to three places to the right of the decimal point where appropriate. a. Compute the anticipated value of the dividends for the next three years. That is, compute D, D, and D; for example, D is $2.10 ($2.00 x 1.05). Round all values throughout this problem to three places to the right of the decimal point. b. Discount each of these dividends back to the present at a discount rate of 12 percent and then sum them. c. Compute the price of the stock at the end of the third year (P). D. P, K.-8 (D is equal to D times 1.05) d. After you have computed P, discount it back to the present at a discount rate of 12 percent for three years. e. Add together the answers in parts band d to get P, the current value of the stock This answer represents the present value of the first three periods of dividends. plus the present value of the price of the stock after three periods (which, in turn, represents the value of all future dividends). f. Use formula 10-8 to show that it will provide approximately the same answer as parte D. (10-8) For formula 10-8, use D = $2.10, K = 12 percent, and g = 5 percent. (The slight difference between the answers to parts e and f is due to rounding.) (And for more fun and review, do these valuation problems.) 33. What is the value of a common share that has just paid a dividend of $2.25, is expecting an indefinite annual growth rate of 5 percent, and requires a return of 17 percent based on perceived market risks