Use the following information to answer questions 4- 8:

Diana wants to evaluate the stock of Eagle Inc, which is currently trading at $14.50 per share. She gathers the following information: Current book value per share = $9.50 ROE = 18% Expected EPS for Year 1-3 = ROE times beginning book value per share Dividend payout ratio = 40% Required rate of return on equity = 10% Question: The company's residual income per share at the end of Year 3 is closest to:

Select one:

a. $0.81

b. $0.93

c. $0.79

Given that continuing residual income will fall to zero after Year 3, the stock is most likely:

Select one:

a. Undervalued.

b. Fairly valued.

c. Overvalued.

Given that after Year 3, ROE will remain constant at 18% into perpetuity, the stock is most likely:

Select one:

a. Undervalued.

b. Fairly valued.

c. Overvalued.

Given that ROE will start to decline in Year 4 and beyond toward the required return on equity with a persistence factor of 0.7, the stock is most likely:

Select one:

a. Undervalued.

b. Fairly valued.

c. Overvalued.

Given that ROE will decline to the long-run industry average and the stock will trade at a P/B multiple of 1.6 at the end of Year 3, the stock is most likely:

Select one:

a. Undervalued.

b. Fairly valued.

c. Overvalued.