DAA's Stock Is Selling for $15 Per Share

Multiple Choice

DAA's stock is selling for $15 per share. The firm's income, assets, and stock price have been growing at an annual 15 percent rate and are expected to continue to grow at this rate for 3 more years. No dividends have been declared as yet, but the firm intends to declare a dividend of D3 = $2.00 at the end of the last year of its supernormal growth. After that, dividends are expected to grow at the firm's normal growth rate of 6 percent. The firm's required rate of return is 18 percent. The stock is

A) Undervalued by $3.03.
B) Overvalued by $3.03.
C) Correctly valued.
D) Overvalued by $2.25.
E) Undervalued by $2.25.