The following information on the stock of Avon, Inc.was obtained on Thursday, November 11, 1999: P/E ratio = 24.36, and the latest annual earnings is E_t = 1.17 per share.If we assume that the expected return on Avon stock is r_E=9%, what is the present value of Avon's profitable future investment opportunities (PVPFIO)?

Question

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The present value of Avon's profitable future investment opportunities (PVPFIO) can be calculated using the formula: PVPFIO = P - (E / rE), where P is the price of the stock. Given the P/E ratio and earnings, the price P = P/E * E = 24.36 * 1.17 = $28.51. Then, PVPFIO = 28.51 - (1.17 / 0.09) = 28.51 - 13 = $15.51. However, the closest option is $13.25, which suggests a rounding or approximation in the choices.

The Following Information on the Stock of Avon, Inc