The board of directors of API, a relatively new electronics manufacturer, has decided to beginning paying a common stock dividend to increase the attractiveness of the stock in the free market. The board plans to pay $3.00 per share in the coming year (i.e., next year) and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the period from 2009 - 2012 (see below). The company currently has a beta of 1.1, the rate of return for the market is expected to be 10% and the risk-free rate is currently 4%. Given this scenario, what is the current value of API's common stock? If the current market price is $40.00 per share, should you purchase this stock. Briefly, explain your answer. (HINT: This problem requires a three-part calculation to solve it)

Year Dividend

2012 $2.81

2011 $2.70

2010 $2.60

2009 $2.50