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Stock Valuations for Kummins Engone Company

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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?

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Solution Summary

The solution calculates the value of stock using CAPM and dividend discount (constant growth) model.

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Step 1: Calculate the required return on the stock using ...

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