If a company has a current stock price of $75, an EPS of $2/share; EPS growth rate of 10% and the investors rate of return is 12%, calculate the percentage of share value arising from growth
Opportunities.

Question

Quizplus · Accepted Answer

The percentage of share value arising from growth opportunities can be calculated using the Gordon Growth Model as follows:

Percentage of share value arising from growth = (EPS * (1+ growth rate) / (investor rate of return - growth rate)) - 1

Plugging in the given values, we get:

Percentage of share value arising from growth = (2 * 1.1 / (0.12 - 0.1)) - 1
= 0.78 or 78%

Therefore, the correct answer is choice C.

If a Company Has a Current Stock Price of $75