Next year's earnings are estimated to be $5. The company plans to reinvest 20% of its earnings at 15%. If the cost of equity is 9%, what is the present value of growth opportunities?
A. $9.09
B. $10.10
C. $11.11
D. $12.21
C. $11.11
g = .20 × .15 = .03
Value with growth = ( $5 × .80)/(.09 - .03) = 66.67
Value without growth = $5/.09 = $55.56
PVGO = $66.67 - 55.56 = $11.11
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