If a company has a current stock price of $50, an EPS of $1.75/share; EPS growth rate of 20% and the investors rate of return is 13%, calculate the NPVGO.

Question

Quizplus · Accepted Answer

The Net Present Value of Growth Opportunities (NPVGO) is calculated as the difference between the current stock price and the no-growth value of the stock. The no-growth value per share (V0) can be calculated using the formula V0 = EPS / r, where EPS is the earnings per share and r is the required rate of return. In this case, V0 = $1.75 / 0.13 = $13.46. The growth value per share is then the current stock price minus this no-growth value, so NPVGO = $50 - $13.46 = $36.54.

If a Company Has a Current Stock Price of $50