If a company has a current stock price of $40, an EPS of $1.5/share; EPS growth rate of 15% and the investors rate of return is 10%, calculate the percentage of share value arising from growth opportunities.

Question

Quizplus · Accepted Answer

The percentage of share value from growth opportunities is calculated using the formula: (Growth Value / Current Stock Price) * 100. The growth value is calculated as (EPS * Growth Rate) / (Investor's Rate of Return - Growth Rate). Plugging in the values: Growth Value = (1.5 * 0.15) / (0.10 - 0.15) = 4.5. The percentage is (4.5 / 40) * 100 = 63%.

If a Company Has a Current Stock Price of $40