Cummins Inc.'s annual dividend over the last 5 years has grown from $4.32 to $6.28 in the most recent year (D0). This represents a compound annual growth rate of slightly under 8%. Steve Austin is practicing his valuation skills and is attempting to value Cummins' stock using the dividend growth model with the following assumptions: Steve assumes that Cummins can continue to grow its dividend at 8% for the next 4 years. For years 5 though 8, he assumes the growth will slow to 7%, and after that the growth in the dividend will fall to 5%, forever. Steve estimates that the appropriate discount rate for Cummins' dividends is 8.5%. 

What should the stock sell for today based on a discounted valuation of the future dividends that Steve has projected?

Answer rating: 100% (QA)

Cummins Incs annual dividend over the last 5 years has grown from 432 to 628 in the most recent year ... View the full answer