An analyst gathered the following information about a company:
The stock is currently trading at $31.00 per share.
Estimated growth rate for the next three years is 25%.
Beginning in the year 4, the growth rate is expected to decline and stabilize at 8%.
The required return for this type of company is estimated at 15%.
The dividend in year 1 is estimated at $2.00.
The stock is undervalued by approximately:
A) $15.70.
B) $6.40.
C) $0.00.
Answer: B
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