Your client Holly Lynne has a 15% required rate of return. She is considering investing in XYZ, Inc., which paid an annual dividend of $0.75 this year and is projected to increase its earnings and dividends by 10% annually. The current market price is $15.40.
Which of the following recommendations would you make to the client?
a. The intrinsic value of the stock is $16.50, so the client should not purchase this stock since the company is currently overvalued.
b. The intrinsic value of the stock is $16.50, so the client should purchase this stock since the company is currently undervalued.
c. The intrinsic value of the stock is $15.00, so the client should not purchase this stock since the company is currently overvalued.
d. The intrinsic value of the stock is $15.00, so the client should not purchase this stock since the company is currently undervalued.