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The P/E ratio of a firm being analyzed for purchase is 24. Suppose the firm has a dividend payout ratio of 40%, a cost of

The P/E ratio of a firm being analyzed for purchase is 24. Suppose the firm has a dividend payout ratio of 40%, a cost of equity capital of 14%, and a ROE of 20%. Is this firm over or under valued? Based on the valuation, would you buy it or sell it? Justify your response with the following formula.

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