Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hunter Petroleum Corporation paid a $10 dividend last year. The dividend is expected to grow at a constant rate of 9 percent forever. The required

Hunter Petroleum Corporation paid a $10 dividend last year. The dividend is expected to grow at a constant rate of 9 percent forever. The required rate of return is 17 percent (this will also serve as the discount rate in this problem). Use Appendix B.

a. Compute the anticipated value of the dividends for the next three years. (Do not round intermediate calculations. Round the final answer to 3 decimal places.)

Anticipated value
D1 $
D2 $
D3 $

b. Calculate the present value of each of the anticipated dividends at a discount rate of 17 percent. (Round "PV Factor" to 3 decimal places. Round intermediate calculations to 3 decimal places. Round the final answers to 3 decimal places.)

PV of dividends
D1 $
D2
D3
Total $

c. Compute the price of the stock at the end of the third year (P3). (Round "PV Factor" to 3 decimal places. Round intermediate calculations to 2 decimal places. Round the final answer to 2 decimal places.)

P3

=

D4

Ke g

(D4 is equal to D3 times 1.09)

Price of the stock $

d. Calculate the present value of the year 3 stock price at a discount rate of 17 percent. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to 3 decimal places.)

Price of the stock (discounted) $

e. Compute the current value of the stock. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Current value $

f. Use formula given below to show that it will provide approximately the same answer as part e. (Round the final answer to 2 decimal places.)

P0

=

D1

Ke g

For formula 108, use D1 = $10.90, Ke = 17 percent, and g = 9 percent. (The slight difference between the answers to parts e and f is due to rounding.)

Current value $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Gapenskis Fundamentals Of Healthcare Finance

Authors: Paula H. Song, Kristin L. Reiter

3rd Edition

1567939759, 978-1567939750

More Books

Students also viewed these Finance questions

Question

Describe the major barriers to the use of positive reinforcement.

Answered: 1 week ago