Assuming all of the following firms have a required return of 14%,which would you expect to have a positive present value of growth opportunities?
A) A firm with a P/E ratio of 9.
B) A firm with a P/E ratio of 6.
C) A firm with an E/P ratio of 20%.
D) None of these firms are expected to have positive PVGO.

Question

Quizplus · Accepted Answer

A firm with a P/E ratio of 9 suggests a lower earnings yield compared to the required return of 14%, indicating potential growth opportunities that could lead to a positive present value of growth opportunities (PVGO).

Assuming All of the Following Firms Have a Required Return