### Computation of value of the stock using constant growth

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Calculation of value of the stock using constant growth model.

The Kummins Engine Company common stock has a beta of 0.9. The current risk-free rate of return is 5% and the market risk premium is 8%. The CEO of the company is quoted in a pres 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% for the foreseeable future. Using the constant growth model, what value would you assign to this stock?

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