Given the following assumptions about a company’s financial estimates, calculate the P/E ratio, and determine whether the stock is undervalued or overvalued. Earnings retention rate at 40% Required rate of return of 12.5% Return on equity (ROE) of 11% , expected to remain constant Estimated earnings per share (EPS) for next year of $ 2.75 Current market price of $ 23.70 Which of the following statements is most correct The P/E ratio is:()
A. 7.41 and the stock is overpriced.
B. 7.41 and the stock is underpriced.
C. 7.41 and the stock is properly priced.
