You Are Considering Investing in B & B, Inc

Multiple Choice

You are considering investing in B & B, Inc.'s stock and your broker has told you that you can purchase it for $72. You require a return 12% for this type of investment. The last dividend (D₀) that B & B paid was $4 and a 6% constant growth rate is anticipated. Should you purchase B & B, Inc.?

A) No, because the stock is overpriced by $1.33.
B) No, because the stock is overpriced by $3.33.
C) Yes, because the stock is underpriced by $1.33.
D) Yes, because the stock is underpriced by $3.33.