Question: Aaron Mechanic, CFA is responsible for valuing the shares of Duotronics Research Laboratories (DRL). The stock is currently trading at $8.75 and he gathers the

Aaron Mechanic, CFA is responsible for valuing the shares of Duotronics Research Laboratories

(DRL). The stock is currently trading at $8.75 and he gathers the following financial information about the company:

Expect ROE16% annually for each of the next 4 years

Current BV of equity $435,000,000

Shares outstanding60 million

Required return on equity12%

No dividends paid

All earnings are reinvested

Continuing residual income = 0 after 4 years

Based on the Residual Income Model, what recommendation would Mechanic issue for the stock of DRL?

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