invic

Big Sky Ranches reported the following for the end of its fiscal year:

• Book Value = $3.18
• ROE=22%
• Retention Ratio = 50%
• Required Return = 14.1%

The current share price is $11.28 per share. The shares (relative to a single-stage residual income model) are most likely:

A) undervalued.

B) overvalued.

C) correctly valued.

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g = retention ratio × ROE = (0.50) × 0.22 = 0.11 or 11.00%