Underestimated Inc.'s common shares currently sell for $36 per share. The firm's management believes that its shares should really sell for $54 per share. If the firm just paid an annual dividend of $2 per share and the firm expects those dividends to increase by 8 percent per year forever (and this is common knowledge to the market), what is the current cost of common equity for the firm and what does the firm believe is a more appropriate cost of common equity for the firm?
Current stock price $36
Firms expected stock price $54
Dividend just paid (D0) $2
Constant growth rate 8/5