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 is 12 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 12 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 1.05)

Price of the stock $

d. Calculate the present value of the year 3 stock price at a discount rate of 12 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 = $2.10, K_e = 12 percent, and g = 5 percent. (The slight difference between the answers to parts e and f is due to rounding.)

Current value $