A positive value for PVGO suggests that the firm has:
A) a positive return on equity.
B) a positive plowback ratio.
C) investment opportunities with superior returns.
D) a high rate of constant growth.

Question

Quizplus · Accepted Answer

PVGO stands for present value of growth opportunities. A positive PVGO suggests that the firm has investment opportunities with superior returns, which means that the firm can reinvest its earnings to generate higher returns than the cost of capital. This can lead to higher future cash flows and an increase in the value of the firm.

A Positive Value for PVGO Suggests That the Firm Has