The present value of growth opportunities

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1. (a) What is meant by the present value of growth opportunities (PVGO? What is its role in the valuation of a publicly listed company?
(b) A stock's next dividend is $5 and this dividend is expected to grow indefinitely at 5%. If the market price expects a 9% rate of return what is value of the stock today? If the stock earnings per share is $9 what part of the price of the stock is due to assets in place and what part is due to growth opportunities?

(c) Can the PVGO be relied upon to value the future price of a company's stock? Explain.

Reference no: EM13521937

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