Tri-coat Paints has a current market value of $35 per share with earnings of $2.

Question

Tri-coat Paints has a current market value of $35 per share with earnings of $2.05. What is the present value of its growth opportunities (PVGO) if the required return is 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Tri-coat Paints has a current market value of $35 per share with earnings of $2.05. What is the present value of its growth opportunities (PVGO) if the required return is 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Solution:

As per Earning Price Approach,

Market Value of Stock = EPS / Required Return - growth rate

$35 = $2.05 / 0.06 - growth rate

$35 (0.06 - growth rate) = $2.05

$2.1 - growth rate x 35 = $2.05

- growth rate x 35 = - $0.05

growth rate = 0.05 / 35 = 0.001428 or 0.1428%

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