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 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. Growth Value is calculated as (EPS * (1 + Growth Rate) / (Investor's Rate of Return - Growth Rate)) - EPS. Substituting the given values, Growth Value = ($1.75 * (1 + 0.20) / (0.13 - 0.20)) - $1.75 = $36.55. Therefore, the percentage is ($36.55 / $50) * 100 = 73.1%.

If a Company Has a Current Stock Price of $50