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A company that just paid a $1.60 annual dividend is currently priced at $40. You...

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Finance

A company that just paid a $1.60 annual dividend is currently priced at $40. You estimate the company will grow at 10% per year for the next 4 years and then grow at 6% per year for the next 2 years before leveling off to an estimated terminal growth rate of 4%. Assume stocks beta is 1.2, the risk-free rate is 3% and the return on the market portfolio is 9%. Based on your assumptions, is this stock undervalued or overvalued? By how much?

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