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Fabric Val dOr common stock is currently trading at $35 per unit on the Toronto Stock Exchange. The last annual dividend distributed (per share) is

Fabric Val dOr common stock is currently trading at $35 per unit on the Toronto Stock Exchange. The last annual dividend distributed (per share) is $2.25 per share. Financial analysts expect the company to pay the following dividends over the next few years:

Year

D1

D2

D3

D4

D5

Dividend

2.25* (1.05)

D1 *(1.09)

D2 *(1.07)

D3 *(1.05)

D4 *(1.03)

The dividend at the end of year 5 will be D4 *(1.03) and will grow at the same rate of 3% indefinitely. Given the risk involved, the annual return required by investors on this type of security is 13%. Currently, is the common stock of Fabric Val d'Or overvalued or correctly valued by the market?

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