Question: Micro Corp. is expected to pay a dividend (D1) next year of $2 per share. The required rate of return is 12% and dividends are

Micro Corp. is expected to pay a dividend (D1) next year of $2 per share. The required rate of return is 12% and dividends are growing at 4%. The actual price of Micro is currently at $35 a share. What should you do? Question 24 options:

1) Short-sale it because it is overvalued relative to its value based on the dividend growth model.

2) Short-sale it because it is undervalued relative to its value based on the dividend growth model.

3) Buy it because it is overvalued relative to its value based on the dividend growth model.

4) Buy it because it is undervalued relative to its value based on the dividend growth model.

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