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Dividends and earnings are expected

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A firm recently reported earnings per share of $1.70 at its annual shareholders meeting. The firm has a price/earnings multiple of 10 and a dividend payout ratio of 40%. Dividends and earnings are expected to grow at a rate of 10% for each of the next two years and at 3% indefinitely thereafter. The yield on three-month Treasury Bills is 3%. The stock has a beta of 0.8 and the market risk premium is forecasted to be 5%.

Is the stock properly valued in the market today?

a. Yes, the stock's actual price and its intrinsic value both equal $17.26.

b. No, with an intrinsic value of $17.26 the stock is undervalued in the market.

c. No, with an intrinsic value of $16.26, the stock is overvalued in the market.

d. No, with an intrinsic value of $19.92, the stock is undervalued in the market.

Reference no: EM132169038

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