Assume you ran a regression of all firms listed on the NYSE and arrived at the following OLS estimates. P/BV=0.88+0.82 payout+7.79 growth-0.41beta +13.81ROE.

If a firm has an actual P/BV of 4.12, the beta of 1.25, payout ratio of 0.4, ROE of 0.25, and growth rate of 0.15, is it overvalued or undervalued by the market?

1) Valued correctly

2) Overvalued

3) Undervalued