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Determine if the shares are undervalued

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Reference no: EM132498820

Question 1: ABC Corporation's shares trade on the Toronto Stock Exchange for $11. Assume ABC's beta is 1.4, its ROE is 15%, its retention ratio is 40%, the risk-free rate of return is 2%, the expected market return is 14%, and ABC paid its annual dividend of $1.50 per share earlier today. Using CAPM and the Dividend Discount Model, determine if the shares are undervalued, overvalued or fairly valued? Show your work.

 

Reference no: EM132498820

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