Determine the difference is amount of undervaluation

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Reference no: EM132008322

The ABC Corporation's stock has following data:

It recently paid a dividend in the amount of $5.54

It has an expected growth rate in earnings and dividends of 7.74%

The Expected rate of return for the stock is 18.75%

Based on the CAPM, the required return for the stock is 15.36%

Since the expected return does not equal the required return, the stock is mispriced.

Determine the:

Po based on expected return

Po based on required return

Difference is amount of undervaluation

Reference no: EM132008322

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