Petroleum Corporation paid a $6 dividend last year. The dividend is expected to grow at a constant rate of 8 percent forever. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). (Use a Financial calculator to arrive at the answers.)

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 14 percent. (Do not round intermediate calculations. 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). (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

P3	=	D4
Ke g

(D₄ is equal to D₃ times 1.08)

Price of the stock $

d. Calculate the present value of the year 3 stock price at a discount rate of 14 percent. (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. (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. (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

P0	=	D1
Ke g

For formula 108, use D₁ = $6.48, K_e = 14 percent, and g = 8 percent. (The slight difference between the answers to parts e and f is due to rounding.)

Current value