Next year's earnings are estimated to be $6. The company plans to reinvest 33% of its earnings at 12%. If the cost of equity is 8%, what is the present value of growth opportunities?
A. $6
B. $24.50
C. $44.44
D. $75
B. $24.50
g = .33 × .12 = .0396
Value with growth = ( $6 × .67)/(.08 - .0396) = $99.50
Value without growth = $6/.08 = $75
PVGO = $99.50 - 75 = $24.50
You might also like to view...
Which of the following is NOT utilized to make determinations about the document being examined?
a. forensic chemistry b. microscopy c. photography d. radiology
According to good internal control policies, a person who controls an asset also maintains that asset's accounting records.
Answer the following statement true (T) or false (F)
In the opening case, on what date did Sony Pictures announce that “The Interview” would be available to view on national cable and satellite systems ______.
a. December, 17 2014 b. December, 19 2014 c. January 1, 2015 d. February 5, 2015
Which of the following is a true statement with regard to the finding ratio?
A. A suitable ratio is 97 percent or higher. B. The finding ratio is concerned with the ratio between the number of records used and those not used. C. A low finding ratio may mean that records are not transferred quickly enough. D. A low finding ratio may mean that individuals are using duplicate records rather than requesting records from the central storage area.