XYZ Inc. is expected to maintain its dividend payout ratio of 70% in the long term. The company's earnings per share (EPS) are expected to be $1.575 next year. Earnings are expected to grow at a constant rate of 5% per year. The current risk-free rate is 1%, the implied equity risk premium is 7.0%, and the estimated beta of the firm is 2.10. If the firm is currently trading in the market at a P/E of 13.5, which of the following statements is correct:

XYZ is correctly priced

XYZ is overvalued

XYZ is undervalued

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