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A manager believes his firm will earn a return of 15.00 percent next year. His firm...

A manager believes his firm will earn a return of 15.00 percent next year. His firm has a beta of 1.21, the expected return on the market is 13.00 percent, and the risk-free rate is 6.00 percent.

Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)

Determine whether the manager is saying the firm is undervalued or overvalued.

     

  • undervalued

  • overvalued

A firm is expected to pay a dividend of $3.05 next year and $3.20 the following year. Financial analysts believe the stock will be at their price target of $65 in two years.

Compute the value of this stock with a required return of 13.0 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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