Suppose that Gulfa mineral water Companys next years net income and book value of shareholders equity is 264 million dirhams and 1200 million dirhams respectively. The companys expected payout ratio is 30%, has a required rate of return of 12% and a growth rate 3%. Currently, the firm has 3 million outstanding shares.

Required?

1. What is the justified P/B ratio of the company? (2 pts)
2. Determine the justified P/E ratio of the company (2 pts).
3. Discuss whether the stock is overvalued or undervalued. (2 pts)