Tesaro is a biotech company developing ovarian cancer treatment. The company projects annual sales of $2,150M for 10 years, after which its patent will expire. It has an EBIT margin of 40%, spends $100M per year on capital expenditures and has $50M per year of depreciations in those 10 years and 0 after. Corporate tax rate is 20%. Risk free rate is 3.0%. Tesaros asset beta equals 1.3, and the market risk premium 8.0%. The company is all-equity financed. The number of shares outstanding is 55M.

A. Valuation. (i) Find the fair value of Tesaro.

(ii) At its current price of $44, is Tesaros stock over- or undervalued? Explain your answer