Zigzag Corporation's common shares are currently selling for $22 per share.Zigzag's EPS is expected to be $2 next year, and the required rate of return is 12%.What is the present value of growth opportunities (PVGO)per share?

Question

Quizplus · Accepted Answer

PVGO is calculated as the current stock price minus the no-growth value of the stock. The no-growth value is the EPS divided by the required rate of return, so $2 / 0.12 = $16.67. Subtracting this from the current stock price ($22 - $16.67) gives a PVGO of $5.33 per share.

Zigzag Corporation's Common Shares Are Currently Selling for $22 Per