contestada

Next year's earnings are estimated to be $3. The company plans to reinvest 25% of its earnings at 20%. If the cost of equity is 9%, what is the present value of growth opportunities

Respuesta :

The present value of the growth opportunity is $22.92

Growth =ROE  × Retention ratio

            = 20% × 25%

            = 5%

Value of the growth = (Eps × Dividend payout ratio) / (Cost of equity - Growth)

= (3 ×75%) / ( 9% - 5%)

= 2.25/ ( 9% - 5%)

= 56.25

Value of growth = Dividend / Cost of equity

= 3 / 9%

= 33.33

Present value of growth opportunities = $ 56.25 - $ 33.33

                                                           = $22.92

Hence, the present value of the  growth opportunity is $22.92.

To know more about present value click here:

https://brainly.com/question/20813161

#SPJ4

Otras preguntas