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Question 7. Berkshire Ltd is expected to pay a dividend of $3.0 in the upcoming year, based on an earnings per share (EPS) of $5.0.

Question 7.

Berkshire Ltd is expected to pay a dividend of $3.0 in the upcoming year, based on an earnings per share (EPS) of $5.0. Dividends are expected to grow at a constant rate of 2% per year, and the discount rate is 10%. If Berkshire is currently trading in the market at a P/E of 10, which of the following statements is correct:

A) The firm is undervalued B) The firm is overvalued C)The firm is correctly priced

D) More information is needed

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