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ou are thinking to buy Mapple common stock that is expected to pay a dividends of $1.50 next year. Since Mapple is a rapid growing
ou are thinking to buy Mapple common stock that is expected to pay a dividends of $1.50 next year. Since Mapple is a rapid growing company, it is expected to grow at the rate of 12% next 3 years. After that, it will have a growth rate of 5% forever. Mapple has a required return of 14%. Current price of the stock is $20 per share. With these assumptions, should you buy or sell the stock?
a. Buy since it is undervalued by $ 1.30
b. Sell since it is overvalued by $ 1.30
c. Buy since it is undervalued by $ 0.94
d. Sell since it is overvalued by $ 0.94
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