Problem:
The Kummins Engone Company common stock has a beta of 0.9. The current risk-free rate of return is 5 percent and the market risk premium is 8 percent.
The CEO of the company is quoted in a press release as saying that the firm will pay a dividend of $0.80/share in the coming year and expects the dividends to grow at a constant rate of 7 percent for the foreseeable future. Using the constant growth model, what value would you assign to this stock?