Which one of the following is more likely to be responsible for a firm having a low PVGO?
A) ROE exceeds required return.
B) Plowback is very high.
C) Payout is very high.
D)Book value of equity is low.

Question

Quizplus · Accepted Answer

A low PVGO (present value of growth opportunities) indicates that investors do not expect the company to have high growth in the future. A high payout ratio, meaning the company is distributing more of its earnings to shareholders as dividends, can suggest a lack of reinvestment in the company's growth potential, leading to a lower PVGO. A high plowback ratio, on the other hand, suggests that the company is retaining more of its earnings for reinvestment and has the potential for higher growth opportunities, leading to a higher PVGO. ROE exceeding the required return or a low book value of equity may impact the value of a company but may not necessarily affect the PVGO directly.

Which One of the Following Is More Likely to Be