Question
BHP Ltd. is expected to maintain its dividend payout ratio of 70% in the long term. The latest earnings per share (EPS) announced by the
BHP Ltd. is expected to maintain its dividend payout ratio of 70% in the long term. The latest earnings per share (EPS) announced by the company were $2.05. Earnings are expected to grow at a constant rate of 1% per year. The current risk-free rate is 1%, the implied equity risk premium is 6.0%, and the estimated levered beta of BHP is 0.85. If BHP is currently trading in the market at a P/E of 18.5, which of the following statements is correct:
The firm is overvalued
The firm is undervalued
The firm is correctly priced
More information is needed
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