Firm A has a share price of $35 and 60% of the value of the shares is in the form of PVGO. Firm B also has a share price of $35 but only 20% of the value of Share B is in the form of PVGO. We know that ________.
I. Share A will give us a higher return than Share B
II. an investment in Share A is probably riskier than an investment in Share B
III. Share A has higher forecast earnings growth than Share B

Question

Quizplus · Accepted Answer

An investment in Share A is probably riskier because a larger portion of its value is based on future growth (PVGO), which is uncertain. Share A also likely has higher forecast earnings growth due to its higher PVGO component.

Firm a Has a Share Price of $35 and 60