Question: BHP Ltd. is expected to maintain its dividend payout ratio of 70% in the long term. The latest earnings per share (EPS) announced by the

BHP Ltd. is expected to maintain its dividend payout ratio of 70% in the long term. The latest earnings per share (EPS) announced by the company were $2.05. Earnings are expected to grow at a constant rate of 1% per year. The current risk-free rate is 1%, the implied equity risk premium is 6.0%, and the estimated levered beta of BHP is 0.85. If BHP is currently trading in the market at a P/E of 18.5, which of the following statements is correct:

The firm is overvalued

The firm is undervalued

The firm is correctly priced

More information is needed

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