Problem:
McNally Motors has yet to pay a dividend on its common stock. However, the company expects to pay a $1.00 dividend starting two years from now (i.e., D2 = $1.00). Thereafter, the stock's dividend is expected to grow at a constant rate of 5 percent a year. The stock's beta is 1.4, the risk-free rate is kRF = 0.06, and the expected market return is kM = 0.12.
What is the stock's expected price four years from now?