Problem $10-11$ Undervalued$/$Overvalued Stock $($LG$1$O$-3)$

A manager believes his firm will earn a return of $20\mathrm{.}80$ percent next year. His firm has a beta of $1\mathrm{.}75,$ the expected return on the market is $12\mathrm{.}40$ percent, and the risk$-$free rate is $2\mathrm{.}40$ percent.

Compute the return the firm should earn given its level of risk.

Note: Round your answer to $2$ decimal places.

Determine whether the manager is saying the firm is undervalued or overvalued.