A manager believes his firm will earn a 1630 percent return, Financial Management

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A manager believes his firm will earn a 1630 percent return

A manager believes his firm will earn a 16.30 percent return next year. His firm has a beta of 1.84, the expected return on the market is 14.00 percent, and the risk-free rate is 3.00 percent.

Compute the return the firm should earn given its level of risk.

Required return % =

Determine whether the manager is saying the firm is undervalued or overvalued.

Undervalued

Overvalued

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Financial Management: A manager believes his firm will earn a 1630 percent return

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Financial Management: A manager believes his firm will earn a 1630 percent return

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