11. The Kummins Engine Company common stock has a beta of 0.9. Thecurrent risk-f
ID: 2770606 • Letter: 1
Question
11. The Kummins Engine Company common stock has a beta of 0.9. Thecurrent risk-free rate of return is 5 percent and the market riskpremium is 8 percent. The CEO of the company is quoted in a press release as saying thatthe firm will pay a dividend of $0.80/share in the coming year andexpects the dividends to grow at a constant rate of 7 percent forthe foreseeable future. Using the constant growth model, what valuewould you assign to this stock?I have read the chapter and even have the excel program forfinance... I am mathematically retarded!! Please help!!!
Explanation / Answer
D/(r-g) $.80/(.08-.07) = $80
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