A manager believes his firm will earn a 7.5 percent return next year. His firm has a beta of 2, the expected return on the market is 5 percent, and the risk-free rate is 2 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued.

A. 8 percent, undervalued

B. 8 percent, overvalued

C. 12 percent, undervalued

D. 12 percent, overvalued