Problem
MT Corporation's shares trade on the Toronto Stock Exchange for $22. Assume MT's beta is 1.1, its ROE is 12%, its retention ratio is 60%, the risk-free rate of return is 2%, the expected market return is 11%, and MT paid its annual dividend of $1.25 per share earlier today. Using CAPM and the Dividend Discount Model, determine if the shares are undervalued, overvalued or fairly valued?