The net present value of a growth opportunity, NPVGO, can be defined as: A) the present value of an investment in one new project. B) the steady growth in dividends from continual re-investment with positive NPV. C) continual reinvestment of earnings when r g.

Question

The net present value of a growth opportunity, NPVGO, can be defined as:
A) the present value of an investment in one new project.
B) the steady growth in dividends from continual re-investment with positive NPV.
C) continual reinvestment of earnings when r < g.
D) a single period investment when r > g.

Quizplus · Accepted Answer

NPVGO refers to the net present value of growth opportunities, which typically involves the steady growth in dividends or cash flows from continual reinvestment in projects with positive NPV. This concept is based on the idea that a company can generate value by reinvesting its earnings in new projects that are expected to yield returns greater than the cost of capital.

The Net Present Value of a Growth Opportunity, NPVGO, Can