Is the stock currently over-priced or under-priced

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The most recently paid dividend by Bridges & Associates was $0.625 per share. The annual growth of its dividends is expected to be 20%, 25% and 35% in the following 3 years. After 3 years, dividend growth will slow down to a constant rate of 6% a year. The required rate of return on the stock of Bridges & Associates is 10%.

If an investor who purchases the stock at its current selling price would earn a total return of 12% per year, is the stock currently over-priced or under-priced? Explain.

Reference no: EM131326836

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